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Money

Index funds and fees

An index fund tries to match a market index instead of beating it. That usually means less trading and lower fees. Fees look tiny, but over decades a difference of half a percent adds up to thousands.

Easy10 min to readFree

You'll need

  • Your retirement plan's fund list, if you have one

What to know

  1. Know what an index fund is: a mutual fund or ETF that follows a passive strategy to get roughly the same return as an index, before fees (Investor.gov).
  2. Know why people like them: passive management usually means lower transaction costs and lower fees than actively managed funds (Investor.gov).
  3. Find each fund's total annual operating expense, often called the expense ratio, in your plan's fund list or the fund's documents (Investor.gov).
  4. Compare. In the SEC's example, $100,000 growing 4% a year for 20 years ends near $208,000 with a 0.25% fee and near $179,000 with a 1% fee (Investor.gov).
  5. Ask any adviser how they're paid: commission, a percentage of your assets, or a flat fee (Investor.gov).
Watch out. An index fund still goes down when its market goes down. Lower fees don't mean no risk.

Good to know

Built-in spreading out

Funds can invest across many companies and industries, which lowers your risk if one company fails (Investor.gov).

Check the fee types

The SEC lists common fund fees, including sales charges (loads), redemption fees and account fees (Investor.gov).

Time does the heavy lifting

Low fees matter most over long periods. See Why starting early matters.

Sources

  1. U.S. Securities and Exchange Commission Index fund (Investor.gov)
  2. U.S. Securities and Exchange Commission Understanding fees (Investor.gov)
  3. U.S. Securities and Exchange Commission Mutual funds and ETFs (Investor.gov)

Lesson M9.3 · Last checked October 2, 2026 against the sources listed. See a mistake?