Skip to main content

The importance of costs

Your investment costs have a big effect on how much you have left for your goal. Keep as much as you can.

Understand what you're paying

Make no mistake: Every investment has a cost, even if you don't realize you're paying it.

Mutual funds and ETFs (exchange-traded funds) have an expense ratio: a percentage of the amount in your account deducted from your returns to cover the fund's operating costs.

Why do costs matter?

Investing costs might not seem like a big deal, but they add up, compounding along with your investments.

Imagine you plan to save $200 a month for the next 5 years. If the account earned 5% a year and had no costs or fees, you'd end up with about $13,600.

If, on the other hand, you paid 2% a year in costs—a measly 2%!—your account balance at the end of 5 years would be about $12,900.

That's right: The 2% you paid every year would wipe out more than $700 in potential savings toward your goal.

What can you do?

You can easily find investment options that charge only tenths of a percentage point in fees. It seems obvious but it bears stating: You want to pay as little as possible in costs and keep as much as possible in your account.

Costs can eat away at your savings

A bar chart showing how paying 2% in costs per year would eat away at your savings.

This hypothetical illustration doesn't represent any particular investment, nor does it account for inflation. "What you lose to costs" represents both the amount paid in expenses as well as the "opportunity costs"—the amount you lose because the costs you paid are no longer invested. There may be other material differences between investment products that must be considered prior to investing. Numbers are rounded.

Keep more with Vanguard

When it comes to low costs, we've long been recognized as a leader in the financial industry. In fact, our overall average expense ratio is 81% less than the industry's average.* We're passionate about making sure we're the best place to invest for any goal.

Open an account now

We're here to help

Talk with one of our investment specialists.

Call 800-891-5355

Monday through Friday
8 a.m. to 10 p.m., Eastern time

REFERENCE CONTENT

Layer opened.

Investment

An asset—like a mutual fund, ETF (exchange-traded fund), stock, bond, or CD (certificate of deposit)—purchased in the hope that it will increase in price or pay income.

Layer opened.

Mutual fund

A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.

Layer opened.

Expense ratio

Fees charged to investors to cover operating costs, expressed as a percentage. The money is deducted from investment returns before they're given to investors. For example, if you had $10,000 invested in a fund with an expense ratio of 0.20%, you'd pay about $20 a year out of your investment returns.

Layer opened.

Costs can eat away at your savings

This chart shows how investment costs can eat away at your savings. If you save $200 a month for 5 years, your balance could grow to $13,600 without any investment costs. But if you pay only 2% a year in costs, it could grow to only $12,900. You would lose $700 to costs over that time.

Layer opened.

ETF (exchange-traded fund)

An ETF combines the diversification and professional management of a mutual fund with the trading flexibility and intraday pricing of an individual stock.