Expense ratios and fee drag
What it is: the annual percentage a fund takes, deducted automatically. You never see a bill, which is exactly why it is ignored.
Why 1% is not small: it does not cost you 1%. It costs you 1% *compounded*, every year, on a balance that should have been growing. Over a working life that is frequently a quarter of the final balance.
Where fees hide:
• Fund expense ratios
• Advisory fees, often around 1% on top
• 401(k) plan administration charges
• Bid/ask spreads on thinly traded funds
The uncomfortable comparison: a fund charging 1% must beat one charging 0.03% by roughly a point a year, every year, just to draw level. Most do not.
Chart: $100,000, 8% returns, the only difference being fees.