We talk a lot about returns, stock picking and market timing. We rarely talk about fees. That is unfortunate, because fees are one of the few factors you control entirely, and their effect on your long-term wealth is enormous.
An investor cannot guarantee the return on their investments, but they can, for certain, reduce what they pay to hold them. This article explains what investment fees really are, when you pay them, where to find the information to decide knowingly, and why a gap that looks tiny becomes enormous over time.
What are investment fees?
When you invest, several types of fees may apply, and it is essential not to confuse them.
The first is the account management fee, charged by the platform that holds your investments. On some traditional platforms, this fee can eat away an annual percentage of your assets. On a low-cost platform such as Wealthsimple, in self-directed mode, this fee is zero, and buying or selling ETFs is commission-free. This is one of the great advantages of that model.
The second, and the most important to understand, is the management expense ratio (MER) specific to each fund. It is the annual cost of running the fund itself: management, administration, operating expenses. This percentage applies to the value of your investment in that fund, every year, whether the market rises or falls.
The distinction is crucial. You can have no account fees at all and still pay fund fees. These are two different levels, and both matter.
When do you pay these fees? The trap of invisibility
Here is what makes fund fees so insidious: you never see them go by. The management expense ratio does not appear on your statement as a line of expense. There is no invoice, no visible withdrawal. The fee is deducted directly and continuously from the value of the fund, even before the return is shown to you. In other words, the return you see displayed is already net of these fees.
This invisibility is precisely what makes so many people pay high fees without realizing it. People do not protest an expense they cannot see. That is why a savvy investor must actively seek out the information, rather than wait for it to come to them.
Where to find the information to decide
Before buying an ETF, you can and should know its expense ratio. Here is where to find it reliably.
The safest source is always the fund issuer website: Vanguard, Invesco, BMO, iShares and the others publish the expense ratio of each of their products, along with the "Fund Facts" document that details it. That is the official figure.
Yahoo Finance is handy for a quick check: you search the fund ticker, and the "Expense Ratio" field shows the fee. One important warning, however, because it will save you a mistake: for several ETFs listed on the Toronto Stock Exchange, Yahoo sometimes shows a ratio of "0.00%". This is not a free fund, it is simply missing data. Never rely on it for a Canadian fund: go back and check on the issuer website.
On Wealthsimple, each ETF page presents the fund basic information. It is a good starting point, but for the exact expense ratio, the safest habit remains to confirm it with the issuer or in the fund facts.
The golden rule: never buy a fund without knowing its expense ratio. It is public information, free, and available in seconds. Ignoring it means agreeing to pay a price you did not even look at.
Low fees in practice: the example of my portfolio
To make this concrete, here are the actual expense ratios of two of my own ETFs, chosen precisely for their low cost. They serve as a benchmark for what is considered low.
- My health-sector ETF, whose ticker is VHT, has an expense ratio of about 0.09%. That is extremely low: for $10,000 invested, it amounts to barely $9 per year.
- My technology ETF, QQC.F, which tracks the NASDAQ 100 index, sits around 0.21%, or about $21 per year for $10,000 invested. It is slightly higher than the previous one, which is normal for this type of fund, but it remains very reasonable.
What makes these two funds inexpensive is that they are passively managed, also called index investing. Concretely, the fund simply copies an already established list of companies, called an index: the U.S. health sector for VHT, the hundred largest non-financial companies on the NASDAQ for QQC.F. No one tries to pick the winners or to beat the market. The fund simply replicates the index. Because this requires very little human work, the fees stay minimal.
What high fees look like
To gauge what is low, you have to know what high looks like. In Canada, it is mainly actively managed mutual funds that rank among the most expensive in the world. A mutual fund is a basket of securities, a bit like an ETF, but when it is actively managed, professional managers themselves choose the stocks to buy and sell, in the hope of beating the market. It is that constant human work you pay for. These funds, long sold over the counter at traditional banking institutions, carry expense ratios that frequently hover around 2%. For $10,000 invested, that is about $200 per year, versus $9 for my health fund. That is more than twenty times more expensive, for a product that, statistically, does no better than the index over the long term.
Between the two extremes, some products carry intermediate fees higher than classic index ETFs: covered call funds, highly specialized thematic funds, or leveraged funds. They can have their uses, but their higher cost must be justified by what they actually deliver.
When you deliberately choose to pay more: my example
To be completely transparent, my own portfolio does not contain only very low-cost funds. I also hold a banking-sector ETF, whose ticker is ZWB, and its expense ratio is around 0.71%, nearly eight times that of my health fund. At first glance, this may seem to contradict my fee-hunting principle. In reality, it is a deliberate choice, and it is precisely the kind of decision this article invites you to make knowingly.
A banking ETF is simply a fund that holds bank stocks; in the case of ZWB, the large Canadian banks. But this fund does not merely hold them: it also uses a strategy called covered calls. In simple terms, the fund sells other investors the right to buy its bank shares at a price set in advance, and it collects a sum in exchange for that right. This sum, paid out regularly, generates a high monthly income, around 4.6% per year in my case. It is exactly this income that the higher fees finance, because this strategy requires continuous active management.
The trade-off, which you must know, is twofold: by selling that right, you cap part of the upside potential if bank stocks rise sharply, and over a very long horizon, a simple low-cost index banking ETF generally tends to deliver a better total return. In other words, I pay more for an income stream, not to beat the market.
The lesson, then, is not that every high fee is to be avoided. It is that a high fee must be a conscious choice, justified by a precise goal that the product actually fulfills. Paying 0.71% without knowing why is a mistake. Paying 0.71% while knowing exactly what you are buying in return is a decision. The difference between the two is information.
The table that sums it all up
To see at a glance the real gap between low and high fees, here is a comparison based on a $10,000 investment. The last column shows what each product costs you every year, in fees alone.
| Product | Ticker | Type | Expense ratio | Annual cost per $10,000 |
|---|---|---|---|---|
| Index health ETF | VHT | Passive management | about 0.09% | about $9 |
| NASDAQ 100 ETF | QQC.F | Passive management | about 0.21% | about $21 |
| Covered call banking ETF | ZWB | Active management | about 0.71% | about $71 |
| Actively managed mutual fund | (varies) | Active management | about 2.00% | about $200 |
The gap looks modest over a single year. But remember that this drag repeats every year and compounds: the $200 of the mutual fund, compared with the $9 of the health ETF, becomes a difference of tens of thousands of dollars over a few decades.
Why a few tenths of a percent change a life
Here is the heart of the matter. A fee gap seems trivial in the moment. The difference between 0.20% and 2% feels abstract. But fees are subject to compounding exactly like your savings, except that they work against you. Every dollar taken in fees is a dollar that can never grow or generate future returns. Year after year, this drag compounds, and the gap widens dramatically.
Take an illustrative example. Imagine $50,000 invested for 30 years, with a gross return of 7% per year. With a low-cost fund whose expense ratio is 0.20%, your investment could grow to about $360,000. With a fund whose expense ratio is 2%, the same investment, subject to the same gross return, would reach only about $216,000. The gap exceeds $140,000, solely because of fees. You did nothing different, you invested the same amount in the same market. The only difference is the fees, and they cost you more than your initial stake.
It is exactly the same mechanism that turns a small amount saved regularly into a surprising sum: time amplifies everything. To see this force concretely, I invite you to use our compound interest calculator and compare two identical scenarios while changing only the fee rate. The result speaks louder than any argument. This logic, incidentally, connects to another frequent question, that of how many ETFs to hold.
In summary
Fees are the only variable in your return that you control entirely. You cannot order the market to rise, but you can choose not to overpay to take part in it. Understand the difference between account fees and fund fees. Always look up the expense ratio before buying, preferably on the issuer website, without relying on the misleading zeros of some aggregators. Know that below 0.30%, you are generally in very reasonable territory, and that around 2%, you pay a price hard to justify. And never forget that over the long road, it is the small repeated leaks that sink the great ships. A few tenths of a percent today are tens of thousands of dollars tomorrow.
Want to check what you have learned? Take our quiz on investment fees.
This article is strictly educational and does not constitute financial or investment advice. Expense ratios change over time; always verify the current figure with the fund issuer. It is recommended to consult a qualified professional before making any decision affecting your investments.