Why 1% Fees Are Losing You £21,000
0.1 percent, 0.5 percent, 1 percent... they all sound like tiny numbers. But while a 1% fee might not look like much on a statement, over decades it can quietly devour a huge chunk of your wealth.
Key Takeaways
- Fees Compound: Just like interest, your costs grow exponentially over time.
- The Difference: A 0.9% difference in fees can cost you £21,750 over 30 years on a £10k investment.
- Check the KID: Always find the expense ratio on the "Key Investor Document" before buying.
What is an Expense Ratio?
Every ETF has a management team (or a computer algorithm) running it. They charge a fee for this service. This is called the TER.
If you invest £10,000 in a fund with a 1.00% fee, you pay £100 a year. If you choose a Vanguard or iShares Core fund with a 0.07% fee, you pay just £7.
The £21,000 Gap
Let's look at the numbers. Imagine you invest a lump sum of £10,000 and assume an 8% annual return over 30 years.
Here is what happens depending on the fee you pay:
- Fund A (0.1% Expense): Grows to £97,868.
- Fund B (1.0% Expense): Grows to £76,122.
That is a difference of over £21,750! You haven't done anything differently—same market, same return—but nearly a quarter of your potential profit has vanished into fees.
*Projection based on £10k lump sum at 8% annual growth.
Why Does This Happen?
It's all down to compounding. Yes, your interest compounds, but so do your expenses.
In the expensive fund (1% fee), you lose roughly £100 in the first year. That hurts, but it's manageable.
However, by year 30, because your pot has grown, that same 1% fee is now costing you £761 a year.
In contrast, the low-cost fund (0.1%) is only costing you £98 a year by year 30—less than the expensive fund charged you on day one.
Where to Find the Fee?
You don't need to be a detective. On your broker's app or website (like Trading212 or Hargreaves Lansdown), look for the KID (Key Investor Document) or the "Costs and Charges" section.
You are looking for the Total Expense Ratio (TER) or "Ongoing Charge."
The Transaction Cost Trap
Apart from the holding fee, you might pay to buy the stock. This is the "Spread" (the difference between buy and sell price) and your broker's commission.
"In investing, you get what you don't pay for. Costs matter."
— John Bogle, Founder of Vanguard
Is High Fee Ever Worth It?
Sometimes, yes. A slightly higher fee can be justified if you are trying to access a very specific sector or region that is hard to trade (like Emerging Markets or Robotics).
But for a simple S&P 500 or Global Tracker? Paying more than 0.1% or 0.2% for the same thing is, quite frankly, silly.
How to Lower Your Costs
1. Use a low-cost broker: Platforms like Trading212 or InvestEngine often have zero commission.
2. Stick to Index Funds: Passive funds are cheaper than active ones.
3. Check the TER: Always look at the Key Investor Information Document (KIID).