How small differences in fund fees add up

Seemingly trivial differences in mutual fund fees can be a big drain on an investor’s returns over the long term.

Below is a chart showing the relative savings from investing in funds with low versus high expense ratios, which are the ongoing charges investors pay for the fund’s operating costs, expressed as a percentage of assets.

Expense ratios of 0.1 percent to 0.5 percent are common for many index funds. Most managed funds charge higher amounts, sometimes topping 2 percent.

The chart, compiled by fund researcher Lipper Inc., shows the growth of a $10,000 investment over 30 years for stock funds charging varying expense ratios. The assumed annual market gain is 10 percent. The market will perform differently, of course, but 10 percent is useful for clear illustration, and is roughly in line with average stock returns historically.

The bottom two rows show how much less an investor earns than the market because of the fund expenses paid, in dollar terms, and on a percentage basis.