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How Large Fees Destroy Your Return Over 30 Years (With Numbers)
Key takeaways
- An extra 1% annual fee costs approximately 26% of the final portfolio value over 30 years.
- Compounding works on returns and on costs — fees compound just as gains do.
- Low-cost passive ETFs with a TER of 0.07–0.20% are one of the most powerful tools for minimizing costs.
- Never compare just fund returns — always subtract TER, any entry fees, and broker charges.
- Switching to a cheaper fund can pay off even if you have to pay capital gains tax.
A fee of 1% per year sounds innocuous, but over 30 years it consumes roughly a quarter of the final portfolio value — purely through the power of compounding. Numbers speak more clearly than any warning.
A concrete example in numbers
Assume an initial investment of CZK 500,000 with an average gross return of 7% per year over 30 years.
- TER 0.10% (low-cost ETF): final value approximately CZK 3,500,000.
- TER 1.10% (active fund or robo-advisor with higher fees): final value approximately CZK 2,600,000.
The difference is over CZK 900,000 — more than the original investment — solely because of a 1% annual fee difference. Exact numbers depend on market performance, but the illustration holds.
Why this is how it works
Compounding does not only work for you — it also works against you. Each year, the fee draws down part of the base on which future returns are calculated. The longer you invest, the more this loss multiplies. More on the power of compounding in a dedicated article.
Where to look for fees
Total annual costs consist of: the fund's TER (or OCF) + broker or platform fee + any entry fee. You'll find the TER in the KIID document for the fund or on the provider's website. The entry fee on active funds is typically 1–3% per investment — that's hundreds of thousands of crowns over an investor's career.
What to do about it
Choosing an ETF with a low TER is not a minor detail — it is one of the few factors an investor fully controls. Markets cannot be directed, costs can. That is why TER is the first number to check for every fund.
FAQ
How much does 1% in annual fees cost over 30 years?
On an investment of CZK 500,000 with a 7% annual return, a 1% difference in annual fees translates to approximately CZK 900,000 less at the end of 30 years. The exact number depends on market performance, but the effect is always material.
Where do I find a fund's TER?
In the KIID (Key Investor Information Document) or on the fund provider's website. For ETFs, TER is typically visible on comparison portals such as justetf.com. Look for the abbreviation TER or OCF.
Is it worth switching to a cheaper fund even if I have to pay tax?
It depends on the amount of the capital gain and whether you've met the three-year holding period test. If you have met it, the switch is tax-free. Otherwise, calculate how many years it takes for the TER savings to cover the tax — often just 2–4 years.