so I've been going down a rabbit hole lately trying to understand investing and honestly expenses keep coming up but I can't figure out if they actually matter that much?
like I get that expense ratios and fees exist, but do they actually eat into your returns in a noticeable way or is it one of those things people overthink?
and if they DO matter -how do you even calculate that? is there a simple way to see how much drag fees are putting on your portfolio over time?
would love to hear how you guys think about this. nothing too technical, just trying to get a feel for whether I should be losing sleep over this or not lol
expense ratios – do they actually eat into my returns?
byu/Valuable_Minimum_824 ininvesting
Posted by Valuable_Minimum_824
6 Comments
They absolutely do matter. Expenses are one of the only things that matter in investing and that you actually have control over. Imagine if you are in a fund with a one percent ER and the fund/ market returns three percent that year. You lost 30 percent of your return compared to someone in a low or no fee fund.
https://www.bogleheads.org/wiki/Mutual_funds_and_fees
https://humbledollar.com/2021/11/fees-are-your-foe/
Any parasite in your nest should be exterminated. Small to you, but not small to a long investor with many many shares. The larger your portfolio, the more those fees add up.
Some fees are like 1-2% which would eat into your returns alot over the years. While etf funds are like <0.5% and preform the same or better than mutual funds
Yeah — expense ratios absolutely eat into your returns because they’re taken out every single year, and over decades that compounding drag can cost you tens (or even hundreds) of thousands of dollars. – [https://www.mumbaipuneportal.com/mutual-fund-expense-ratio-calculator/](https://www.mumbaipuneportal.com/mutual-fund-expense-ratio-calculator/) Calculate it easily over here
The higher they are, the more they matter. John Bogle has a chapter about such fees in “Common Sense on Mutual Funds (2010). Decades ago fees and commissions were generally much higher than they are today — 1% or more was quite common, and a 1% drag over an investing lifetime can be enormous. A 0.05% drag is much less costly.
For simple index funds, you can compare the fund’s performance to the index it is trying to track; for instance, VOO with the return of the S&P 500 Index. For active funds, you can often find their return before fees in their fund prospectus.