Decision Guide · Reviewed 6 September 2026
Index funds: 0.03–0.20% (excellent). Active funds: 0.5–2.0% (acceptable, check performance). Over 2%: avoid.
Every 1% in fees costs ~33% of your long-term wealth (30-year horizon at 7% returns). A $500K portfolio paying 1% vs 0.1% = $780,000 difference by retirement. Pay only for what you get.
Expense ratio guidelines
| ER Range | Assessment | Example |
|---|---|---|
| < 0.10% | Excellent (index funds) | Vanguard Total Stock (VTI) 0.03% |
| 0.10–0.50% | Good | Slightly higher index, some active |
| 0.50–1.00% | Acceptable if outperforming | Some active funds, lower-cost advisors |
| 1.00–2.00% | High; requires strong outperformance | Actively managed, advisor fees |
| > 2.00% | Very high; likely not worth it | Hedge funds, high-cost advisors |
30-year impact: $500K at 7% annual return
| ER | Net Return | Portfolio Value | vs 0.10% ER |
|---|---|---|---|
| 0.10% | 6.90% | $7,430,000 | Baseline |
| 0.50% | 6.50% | $6,850,000 | −$580,000 (−7.8%) |
| 1.00% | 6.00% | $5,950,000 | −$1,480,000 (−19.9%) |
| 2.00% | 5.00% | $4,320,000 | −$3,110,000 (−41.8%) |
When paying high fees makes sense
- Fund demonstrably outperforms benchmark by 2%+ annually (covers fee cost)
- Active advisor provides tax-loss harvesting worth 0.5–1% (documented)
- You lack time/skill/discipline; advisor value > fee cost
Red flags (avoid high fees)
- "We beat the market" (90% of funds don't)
- No clear outperformance history vs benchmark
- Fund charges 2%+ with no documented alpha (outperformance)
Recommendation: Default to < 0.20% ER (index funds). If using active manager, ensure documented 2%+ outperformance or advisor value. Avoid anything > 1.5% without exceptional justification.