A fund charges 1% a year. Over 30 years, what share of your money does that 1% take?
Pick before you scroll. Most people are off by a factor of ten, and the reason why is the lesson.
Here is the whole example.
Nothing added and nothing taken out for thirty years.
Every year, for thirty years.
Before any fee: what does $10,000 become?
The fee took a quarter of it.
24.6% of the money, for a figure that appears on the page as “1.00%.”
The fee compounds against you, exactly the way returns compound for you.
The fee is a slice of the whole balance every year, not a slice of the gain. And each slice removes money that would otherwise have earned returns for all the remaining years. Thirty small subtractions, each one compounding, is what turns one percent into a quarter.
Same money, same thirty years, but a fee of 0.1% instead of 1%.
One tenth of the fee. What does it cost over the thirty years?
Where do you find this number for something you already hold?
One idea, in under a minute.
A fee is not a slice off the end. It is charged every year on everything you hold, so it compounds against you for exactly as long as your money compounds for you. That is why the small-looking number matters more the longer you hold.