Fees matter — how and why they erode returns. Fees (expense ratios, sales loads, trading commissions) reduce your gross return before compounding. Over long horizons, a modest fee differential compounds against you: a fund charging 1.00% annually versus 0.05% will let a smaller share of the underlying return accumulate to your account each year, leading to a substantial gap decades later. Conceptually, fees are a drag on the return factor (1 + r − fee) each period, so the effect compounds. That makes fees especially salient for passive, long-hold investors who expect market returns net of costs.

Concrete evaluation and what to do about fees. Compare expense ratios for similar strategies (index vs index, active vs active). For broad-market exposure, low-cost index ETFs or mutual funds are usually the default because they offer market returns with minimal drag. For active strategies, weigh the higher fee against demonstrated and persistent after-fee outperformance (rare over long windows). In taxable accounts, consider turnover too — trades can generate taxable events that reduce after-tax returns. Practical rule of thumb: favor lower-cost funds when strategy, index, and tracking are otherwise comparable.