One main reason for investing in low-cost funds is that the savings compounds over time. A $10,000 investment with an assumed 6% return grows to $10,600 after one year. If there is an expense of 0.1% resulting in a return of only 5.9%, then that $10,000 will only grow to $10,590. The difference for the first year is only $10, but after 20 years that difference compounds to $600. The longer the time period, the larger the difference. After 50 years the difference would be almost $8,500.

Additionally, the larger the expense ratio of an investment, the larger the difference. A 0.1% expense ratio is fairly low, depending on the asset class of the investment, but what if the expense ratio is 0.5%? After one year of investing that same $10,000, the difference is $50. After 20 years, it has grown to almost $2,900, and after 50 years to almost $38,800.

The bottom line is that cost should be a main consideration when selecting investment options for a particular asset class. If investing in an US equity index fund, the cost can be expected to be as low as 0.03%. However, if investing in an emerging markets bond fund, the expense ratio may not fall below 0.6% and could be as high as 1.9%. Consider the cost when investing to maximize your money.

Additionally, the larger the expense ratio of an investment, the larger the difference. A 0.1% expense ratio is fairly low, depending on the asset class of the investment, but what if the expense ratio is 0.5%? After one year of investing that same $10,000, the difference is $50. After 20 years, it has grown to almost $2,900, and after 50 years to almost $38,800.

The bottom line is that cost should be a main consideration when selecting investment options for a particular asset class. If investing in an US equity index fund, the cost can be expected to be as low as 0.03%. However, if investing in an emerging markets bond fund, the expense ratio may not fall below 0.6% and could be as high as 1.9%. Consider the cost when investing to maximize your money.