Unit 3 · Level 1 · Index investing
Fees compound too
Compounding has an evil twin: fees compound too. A fund's TER (total expense ratio) is skimmed off every single year, rain or shine. The gap between 0.2% and 2% sounds like pocket change. But each euro lost to fees also loses all its future growth, so over 30 years that 'tiny' difference can quietly devour a third of your final pot.
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What you get asked
What is a fund's TER?
Total expense ratio: the fund's yearly cost, silently deducted from the fund's value. You never get an invoice, which is exactly why it's easy to ignore.
€10,000 invested for 30 years: in a cheap 0.2% TER index fund it grows to roughly €72,000, but in a 2% TER fund only to roughly €43,000. Roughly how many € did the higher fees cost you?
Roughly €29,000: about triple your original stake, gone to fees and their lost compounding. Same market, same risk, wildly different outcome.
A fund's yearly running cost is abbreviated ___.
Total expense ratio, the first number to check on any fund's factsheet. Broad index ETFs in Europe often charge around 0.1-0.3%.
Match the cost concept to its meaning
Returns are a hope; fees are a certainty. You can't control what markets do next year, but you fully control what you pay.
Why do fees hurt far more than their small percentage suggests?
Every fee takes a euro today plus that euro's children and grandchildren. Low costs are the one 'edge' every investor can have for free. 🐜
The rest of this unit
Why buying the whole haystack beats hunting for the needle.