Fee Drag

By Greg Parsons, editor

Educational only, not financial advice.

Fee drag is the compounding effect that ongoing fees have on long-term returns. Because fees are deducted every year, they don't just cost you the fee amount — they cost you the growth that money would have earned too.

Why it matters

• A 1% annual fee doesn't just cost 1% of your balance once — it costs 1% of a growing balance, every year, for decades.
• Fee drag is one of the few variables in investing an investor can fully control (unlike market returns).
• Small percentage differences in fees can translate into large dollar differences over a 20-30 year horizon.

Simple example

• On $100,000 invested for 30 years at a 7% return, a 0.10% fee versus a 1.10% fee can differ by well over $150,000 in ending value.
• The Fee Impact Calculator can model this trade-off for your own numbers.

Related terms

• Expense Ratio
• MER
• Rate of Return

Learn more

• Fee Impact Calculator
• ETF Fees Guide