Beginner Guide

Fees Really Matter: how “small” costs destroy compounding

A 1% yearly fee sounds harmless until you stack it for decades. This page shows where fees hide, how to estimate your all-in cost, and the simplest ways to cut fee drag without changing your investing goals.

1) Why a “small” fee is not small

Fees are quoted as tiny percentages, but they hit you every year. Paying 1% isn’t “1% once” — it’s a permanent slice taken from your portfolio value, year after year, in good markets and bad.

The real damage is opportunity cost: money paid in fees doesn’t compound for you in the future. That’s why a small-looking gap (like 0.05% vs 1.00%) becomes huge over 20–30 years.

See the hard numbers here: Fees 0.03% vs 1% (study).

2) Fees you pay with behavior

Some costs don’t show up as a line item. They show up as worse execution and bad timing.

• Over-trading: even “$0 commissions” still has spreads and (sometimes) taxes.
• Chasing hot funds: rotating into winners often means buying high and selling low.
• Cash drag: staying uninvested because you’re waiting for “the perfect entry”.
• FX churn: converting tiny amounts frequently can quietly bleed you.

If you want a clean implementation baseline, start with Index Funds 101.

3) Quick audit: estimate your all-in cost in 6 steps

You don’t need perfect math. You need to know if you’re closer to ~0.20% or ~1.20%+.

1. List accounts: brokers, apps, robo/advisors, retirement plans.
2. List funds: note each ETF/fund’s expense ratio (TER).
3. Add platform fees: custody/inactivity/subscriptions (annualized).
4. Estimate trading: how often you buy/sell and typical spreads/fees.
5. Estimate FX: your broker’s FX markup and how often you convert.
6. Sanity check: write one rough “all-in %/year” number and keep improving it over time.

If your all-in cost is over ~1% for a plain index strategy, you usually have easy wins available.

4) Practical ways to cut fees without changing your goals

• Use broad, low-cost index ETFs for your core holdings.
• Stop stacking wrappers: avoid paying robo + expensive funds + platform fees unless you get real value.
• Trade less: design a plan that doesn’t require constant “doing something”.
• Reduce FX friction: convert in sensible chunks; avoid frequent tiny conversions.
• Simplify holdings: keep fewer overlapping ETFs (cheapest, most liquid wins).

Fees are one of the few inputs you can control with near-certainty. Control them.

5) Extra fee traps for non-US investors

Non-US investors often lose more to FX and platform friction than to fund TER.

• FX spreads/markups: some brokers hide large conversion costs.
• Custody/inactivity fees: paying just to hold assets is pure drag.
• Expensive “local wrappers”: feeder funds and packaged products can hide higher internal costs.
• Tax leakage: withholding and domicile choices can act like another layer of drag.

Broker choice matters here. Use your broker hub as the next step: Compare brokers.

Quick fee checklist

• I know the TER/expense ratio of my core ETFs.
• I know whether my broker charges custody/inactivity/subscription fees.
• I know my FX markup (or at least whether it’s “cheap” or “expensive”).
• I’m not churning my portfolio just to feel active.
• I have one written number: my rough all-in cost per year.