Description of image

Question 5

Fees matter -- a lot. Expense ratios and other fees eat into returns over time, often quietly. Imagine two funds that both return 7% before fees, but one charges 0.05% and the other charges 1.00% annually. Over decades, that fee gap compounds away a substantial portion of your gains. This is why low-cost index ETFs have gained favor for long-term, passive investors: they often track an index with minimal overhead and thus keep more of the market return for you. Behavioral tip: investors frequently overlook fees because they are deducted automatically; make a habit of checking and comparing expense ratios when choosing funds. This scenario asks which statement best reflects the long-term impact of a higher fee on otherwise similar investments.

If two funds have identical returns before fees but one charges 1.0% and the other 0.05% annually, which statement is most accurate for a long-term investor?

Did You Also Know...

By Wise Wallet

A HELOC (home equity line of credit) functions like a credit card secured by your home’s equity and carries variable rates and repayment risks.