If you invest for the long term, you've probably heard that "fees matter." What a lot of people don't realize is how much they matter. A fee difference that looks tiny — 1% versus 0.1% — can add up to tens of thousands over 25 or 30 years. Here's why, with real numbers.
What is a fund's TER?
The TER (Total Expense Ratio) is the annual percentage a fund or ETF charges on the assets it manages. It covers administration, custody and other ongoing costs, and it's automatically deducted from the fund's net asset value: you never see it as a line-item charge, but it's there, quietly reducing your return every single year.
An index fund tracking the S&P 500 or the MSCI World typically has a TER between 0.07% and 0.3%. An equivalent actively managed fund can charge between 1% and 2%, sometimes more if it also has a performance fee.
How a 1% difference turns into tens of thousands
Imagine two people investing €1,000 upfront plus €200 a month for 25 years, both earning a 7% gross annual return. The only difference is their fund's fee:
| Fund | Fee (TER) | Net return | Value after 25 years |
|---|---|---|---|
| Actively managed fund | 1.5% | 5.5% | ~€132,000 |
| Index fund | 0.15% | 6.85% | ~€164,000 |
Difference: over €31,000 — without contributing a single extra euro. The only variable that changed was the fee.
Why this happens: the TER isn't deducted once — it's deducted every year from a growing balance. It's the same mechanism that makes compound interest grow, just working against you instead of for you.
The gap widens over time
At 10 years, the difference between the two funds in the example is just a few thousand euros. At 25 years, it explodes. The longer your investment horizon — and for a pension fund or retirement plan that can be 30 or 40 years — the more the fee ends up mattering compared to almost any other decision you make.
Index funds vs. actively managed funds
Index funds tend to have lower fees because they replicate an index automatically, without needing a team of analysts making decisions. That doesn't mean active management is inherently bad, but it does raise the bar: an active manager needs to beat the index after deducting a fee several times higher, something most don't manage to do consistently over the long run, according to numerous comparative studies (SPIVA, among others).
The TER isn't the only cost
It's the most important one over the long term, but not the only one:
- Subscription or redemption fees, if the fund charges them.
- The bid-ask spread for ETFs — the gap between buy and sell price.
- Broker or platform fees wherever you trade.
Adding all of these up gives you a more realistic picture of what investing actually costs you.
What about taxes?
How gains from funds and ETFs are taxed depends on your country of residence, so there's no universal answer here. What is constant everywhere is that the TER is deducted before any gain or loss is calculated for tax purposes — so the fee's impact is completely independent of how you're taxed afterward.
Calculate the impact for your own numbers
The math changes depending on your starting capital, your monthly contribution and your time horizon. Instead of relying on a generic example, try our fund and ETF fees calculator: compare two funds using your own numbers and see exactly how many euros are on the line for every percentage point of fees.