How much does a 1% expense ratio actually cost me compared to a 0.05% fund?

Fees compound against you the same way returns compound for you, so small percentages become large dollars over decades. Consider $100,000 growing at roughly 7% a year for 30 years. A near-free index fund charging 0.05% leaves you with dramatically more than a fund charging 1%, and the gap can easily reach into the hundreds of thousands of dollars once you factor in the returns you never earned on the money paid in fees. The Department of Labor and studies from Morningstar have long shown that fees are one of the most reliable predictors of fund underperformance. Since two index funds tracking the same benchmark deliver nearly identical gross returns, the cheaper one keeps more in your pocket. Always check the expense ratio before buying, and favor funds under about 0.20%.