$93 Billion: The true cost of expense ratios

In 2023, investors in Mutual Funds and ETFs paid an estimated $93 billion in fees [1]. That's more then the annual economic output of nations like Iceland, Cyprus, and Armenia combined, and dwarfing the GDP of over a hundred countries worldwide [2].

Were you aware of this significant, yet often overlooked, cost? It's easy to miss, especially since both Exchange-Traded Funds (ETFs) and mutual funds are frequently promoted for their "low costs" and diversification benefits. While Funds can appear cheaper than some older investment vehicles, it’s crucial to understand that "low cost" is not synonymous with "no cost." Even seemingly insignificant percentages can accumulate into extraordinary sums.

Currently, investors have entrusted nearly $26 trillion to various types of Funds. Even modest average expense ratios, when applied to such massive assets, generate substantial revenue for fund managers. You might dismiss a 0.10% expense ratio as "practically nothing." And in percentage terms, it does sound minuscule. However, let's consider the real-world impact. An expense ratio of 0.10% translates to $10 in annual fees for every $10,000 invested. The world of this is that this is money that could compound over time. If you take a $500,000 account, and charge a 0.36% expense ratio over 30 years, you end up losing more than $364,000 to those fees over time [3].

This is the crux of the issue: multiply that seemingly small percentage across trillions of dollars, and it explodes into the very real $93 billion fee burden. This substantial sum is directly deducted from fund assets, consistently diminishing investor returns year after year. It's a persistent drain on portfolio growth, subtly embedded in fund prospectuses and easily overshadowed by daily market fluctuations.

Remember, these basis points represent tangible money—your money—that could be compounding and accelerating your wealth accumulation. Fees directly impede the power of compounding, the cornerstone of long-term financial success. Imagine the potential if these billions in fees remained invested, working for you instead of fund management companies.

This understanding of the real impact of expense ratios, even those that appear small, has motivated our approach to pricing here at Double. We champion transparent, accessible, and genuinely low-cost investing. Our service is structured to break free from the traditional percentage-based asset management model. Instead of AUM fees or embedded expense ratios, we offer a simple, predictable flat fee of just $1 per month. At low account minimums, this may be more expensive than an expense ratio, but as your account grows you will not be left paying an increasing fee every year. We offer flat fee, low-cost investing that empowers you with greater control and clarity.

Therefore, the next time you encounter the appealing label of "low-cost" Funds, remember the $93 billion. Look beyond the marketing. Recognize that even fractions of a percent, paid annually for as long as you hold the investment, become significant when aggregated across the vast fund universe. Are you truly maximizing your financial future, or are you unknowingly contributing to this colossal $93 billion fee pool? Perhaps it's time to explore a more transparent and genuinely cost-effective path to building your wealth.

[1] - Fund data of $26T in 2023 from Fed Data (ETFs and Mutual Funds). Asset Weighted Expense Ratio of 0.36% in 2023 from Morningstar

[2] - World Bank GDP data 2023

[3] - Calculate here with $500,00 starting balance, no monthly contribution, a 7% annual return and a 0.36% advisor fee.