Why Investment Fees Still Matter

I recently reviewed a prospective client’s portfolio and came across something I honestly had not seen in years: a mutual fund with an expense ratio of 1.91 percent. 

Not 0.91 percent, not 0.19 percent. One point nine one percent. 

In a world where broad-market index funds can be purchased for less than 0.1 percent, it felt like stumbling across a gallon of lead paint. These funds somehow still exist. And perhaps more surprising is that people still own them. 

For decades now, some of the most thoughtful voices in finance have warned investors about the corrosive impact of high investment fees. Jack Bogle—the founder of Vanguard—built an entire movement around the idea that costs matter. As Burton Malkiel explained in A Random Walk Down Wall Street, minimizing expenses is one of the few reliable ways to improve outcomes. And Jason Zweig, whose columns I devoured early in my career, relentlessly reminded readers that fees are one of the only variables investors can control. The math hasn’t changed.  

A 1.91 percent expense ratio may not sound outrageous at first glance. After all, it’s less than two percent. But percentages compound, both for good and bad. 

Imagine two investors, each putting $500,000 into broadly diversified equity funds and earning an 8 percent gross return (that is, before fees and expenses) over 25 years. One pays 0.10 percent annually, while the other pays 1.91 percent. 

At the end of 25 years, the low-cost portfolio grows to approximately $3.3 million while the high-cost portfolio is at about $2.2 million. That’s a difference of more than $1 million— not because of poor markets, bad timing, or excessive risk, but because of fees. 

Jack Bogle liked to say, “In investing, you get what you don’t pay for,” a clever inversion of the old saying. In most industries, higher prices signal higher quality. In asset management, they do not.  

A young John (Jack) Bogle. Image created by Tableaux Wealth using ChatGPT.

Burton Malkiel demonstrated that after accounting for costs, very few active managers consistently outperform broad market indexes over long periods. Even when they do, identifying outperforming managers in advance is nearly impossible. 

Jason Zweig brought a behavioral dimension to the discussion. He didn’t just argue that fees were mathematically costly. He also emphasized how marketing narratives distract investors from simple truths. Star managers, complex strategies, and glossy prospectuses can make a 1.91 percent fee feel justified. But markets don’t reward storytelling. They reward discipline and cost control. 

The evidence has only strengthened over time. Study after study shows that lower-cost funds tend to outperform higher-cost peers within the same category.  

If the data are so clear, why do funds charging nearly 2 percent still exist? Part of the answer is investor inertia. Investors may have bought expensive funds through brokers or advisors years ago, before fund expenses began trending downward, and simply never revisit them. As long as there are enough investors to keep the fund profitable, there’s no incentive for the fund to close.  

Another part of the answer is investment complexity. There’s always a financial incentive for investment managers to develop complicated strategies that attempt to beat the market, sometimes by protecting against downturns, sometimes by capturing more growth than the market. (If you encounter a fund that claims to do both, tread carefully). The question is whether the strategy succeeds enough to more than pay for itself over time.  

Further complicating things, many of these high-cost funds are wrapped in reassuring language about “tactical flexibility” or “downside protection” that can cloud investor judgment. But the bottom line is that a 2 percent fee is an extraordinarily high hurdle for any manager attempting to beat the market return. A manager may succeed for a period of time but sustaining it over decades is rare. 

As financial advisors, we spend a great deal of time talking about asset allocation, tax efficiency, withdrawal strategies, and risk management. But controlling fees may be one of the simplest and most powerful planning decisions an investor can make. Unlike market returns, fees are knowable in advance. And unlike economic cycles, they are predictable. Reducing them requires no forecasting skill. 

The good news is that investors have more access than ever to low-cost, diversified options. The index fund revolution that Bogle started has fundamentally reshaped the industry. But apparently the job isn’t finished. 

Investors should periodically review their holdings and ask simple questions such as how much am I paying, what do I get for that fee, and is there a lower-cost alternative that provides similar exposure? 

Keeping fees low isn’t the only determinant of investment success, but it is one of the few factors entirely within our control. Over 60 years after the early pioneers began sounding the alarm, the message remains as relevant as ever: In investing, costs matter. 

And when I encounter an exorbitant expense ratio in 2026, it reminds me that sometimes the most important financial advice is also the simplest. 

 This article originally appeared in The Berkshire Eagle.