What fund fees really cost you

A management fee is charged every year on the whole balance, not just on gains. We take it out of the return before compounding: a fund with a 7% gross return and a 2% fee grows by about 4.9% a year.

The difference looks small in one year, but it compounds. Money paid in fees no longer earns returns in later years, so the effect grows with time.

The comparison assumes the same gross return for both funds. Include all yearly costs in the fee: management, custody and other fund expenses.