What is a good expense ratio?

For broad index funds, roughly 0.03% to 0.20% a year is common. Above about 0.5% you should be able to name exactly what the extra fee buys you; above 1% the burden of proof is heavy. These are general observations, not advice.

How much does a 1% fee cost over time?

As a hypothetical, on steady monthly investing over 30 years at 7% before fees, moving from a 0.05% to a 1% fee reduces the final balance by very roughly one sixth. On large balances that is six figures. Run your own numbers to see your exact drag.

Where do I find a fund's expense ratio?

On the fund's fact sheet or provider page, listed as "expense ratio", "MER", or "total expense ratio (TER)". It is charged inside the fund, so it will not appear as a transaction on your brokerage statement.

Do index funds always beat active funds because of fees?

Not always in any given year, but after costs the average high-fee fund has historically lagged cheap index equivalents over long periods, and past winners rarely persist. Fees are the one performance factor you control completely.

Expense Ratios Explained: What a 1% Fee Really Costs You

6 min read · Updated 2026-09-07

Every fund you own charges a fee, taken silently out of the fund's value every year: the expense ratio (in Canada, the MER). You never see a bill, which is exactly why it is the most underrated number in investing.

The trick is that the fee compounds against you the same way returns compound for you. One percent a year sounds like pocket change; over a working lifetime it can consume a fifth to a quarter of your final balance. This guide explains where the number hides, how the drag adds up, and how to put a dollar figure on your own funds.

X-ray my fund fees →

What an expense ratio actually is

The expense ratio is the percentage of your money the fund keeps each year to pay for management, administration, and (in some funds) marketing. It is deducted from the fund's assets daily, so it never appears as a line item on your statement: the fund's return simply arrives that much lower.

•A broad index ETF commonly charges roughly 0.03% to 0.20% a year.
•Actively managed mutual funds commonly charge roughly 0.5% to 2% a year.
•The fee is charged on your whole balance every year, in good years and bad, whether or not the fund beats anything.

Why a small fee becomes a large cost

A fee reduces your return, and a lower return compounds to a much lower balance. As a hypothetical: invest $500 a month for 30 years at a 7% annual return before fees. At a 0.05% fee you end near $590,000. At 1% you end near $490,000. Same deposits, same market, roughly $100,000 less, and none of it ever showed up as a charge you could see.

The damage grows with time and balance: the fee costs you little in year one and the most in the years your balance is largest, which are exactly the years before and during retirement.

Same deposits, same market, different fee (hypothetical, 30 years)

0.05% fee

$590k

0.50% fee

$545k

1.00% fee

$490k

Hypothetical: $500/month for 30 years at 7%/yr before fees. Run your real funds and amounts in the Fee X-Ray to see your own number.

The fees that matter (and the ones that matter less)

Not every cost deserves equal worry. Ranked by typical lifetime impact:

•The fund's expense ratio or MER: the big one, because it is charged on everything, forever.
•Advisory or platform fees stacked on top: a 1% advisor fee plus 0.8% funds is a 1.8% total drag; always add the layers.
•Trading commissions and currency-conversion charges: one-off costs that matter for frequent traders and small accounts, less for buy-and-hold.
•Bid-ask spreads: usually tiny on large, liquid index funds; worth a glance on niche products.

Is a higher fee ever worth it?

Sometimes a fee buys something real: a one-fund portfolio that rebalances itself, access to an asset you cannot hold cheaply, or advice you genuinely use. The honest test is to name what the extra fee buys and price it in dollars per year on your balance. "It might outperform" is not a purchase; decades of fund studies find that higher-fee funds, as a group, underperform cheaper ones after costs.

This is education, not advice: the point is to know what you pay, in dollars, and what you get for it.

Put a dollar figure on your own funds

Percentages hide the stakes; dollars reveal them. Enter your actual holdings and see the fee drag projected over your horizon, then swap in a cheaper equivalent fund and watch the gap. Five minutes of checking has a better payoff per minute than almost anything else in investing.

Try it yourself

Fee X-RaySee what your funds' fees cost in actual dollars over your horizon.Open tool →Backtest PortfolioCompare a cheap index mix against a pricier equivalent on real data.Open tool →Contribution CoachSee how deposits and fee drag interact over decades.Open tool →

FAQ

What is a good expense ratio?: For broad index funds, roughly 0.03% to 0.20% a year is common. Above about 0.5% you should be able to name exactly what the extra fee buys you; above 1% the burden of proof is heavy. These are general observations, not advice.
How much does a 1% fee cost over time?: As a hypothetical, on steady monthly investing over 30 years at 7% before fees, moving from a 0.05% to a 1% fee reduces the final balance by very roughly one sixth. On large balances that is six figures. Run your own numbers to see your exact drag.
Where do I find a fund's expense ratio?: On the fund's fact sheet or provider page, listed as "expense ratio", "MER", or "total expense ratio (TER)". It is charged inside the fund, so it will not appear as a transaction on your brokerage statement.
Do index funds always beat active funds because of fees?: Not always in any given year, but after costs the average high-fee fund has historically lagged cheap index equivalents over long periods, and past winners rarely persist. Fees are the one performance factor you control completely.

Key terms in this guide

Plain-English definitions in the Learning Hub.

CAGR (Compound Annual Growth Rate) →Total return →Tracking error →Sharpe ratio →

Stop guessing — run the numbers on your own portfolio, free.