Index funds and the fee drag
Lesson 9 of 13 in our free Build Wealth the Boring Way guide: a 5-minute money game with the key points below.
This lesson is in the full version.
Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Build Wealth the Boring Way is free for everyone.
Got a code? Unlock this lesson
Questions you'll answer
Illustration: £10,000 left for 30 years. Growth before fees is 5% a year. Fund A costs 0.2% a year, Fund B 1% a year. Roughly how much more does A end with?
What does 'the fund tracks an index' mean?
Quick facts
- The fund's yearly ongoing charge → A cost. Taken every year from the fund.
- A platform fee for holding your account → A cost. Often a % a year or a flat fee: add it to the fund charge.
- The tax-free status of an ISA → Not a cost. The wrapper saves tax; it isn't a charge in itself.
- A dealing fee every time you buy or sell → A cost. Frequent trading racks these up.
- The index the fund follows → Not a cost. An index is just a scoreboard; costs come from the fund and platform.