🧠 The one guarantee when investing?

If there's one thing you can count on when investing, it's fees.

Markets go up, markets go down, markets do nothing at all, but fees never miss a beat. Annually, monthly, sometimes on every single trade.

So why do so many people overlook them?

A 0.5% versus 1.5% annual fee seems so small, so we wave it away.

But that’s triple the cost.

So why do fees slip past so many people's radar?

• Is it because these tiny percentages feel insignificant?

• Is it because we can't picture what they mean down the road?

• Is it because we focus on future returns, not future costs?

Between 2023 and 2024, a team of European researchers surveyed over 5,000 regular investors across 5 countries (France, Germany, Netherlands, Spain, Poland).

They gave participants a real choice: split your money between cheap traditional funds or sustainable funds, for which fees were deliberately adjusted from 0.2% to 2.3% per year.

Their goal was to see how much people's values (environment, social impact) actually make them willing to pay more, and which investors end up paying more without even realising it.

This is what they found:

• When fees are equal (0.2%), 56% goes to sustainable funds versus traditional ones.

• Most people pull back from sustainable funds when fees go up

...except for one group:

• Investors with low financial literacy barely budge when fees increase. Sometimes they even put more money into the pricier funds, while financially savvy investors clearly scale back.

• This group pays higher fees without getting better returns, because they don't really grasp how fees eat into long-term gains, and some even assume that higher fees mean better performance after costs.

• The data also shows they pay less attention to fee information during the experiment, making them even more vulnerable.

What the researchers found: people who pay more aren’t necessarily doing it because of their values, but because they lack financial literacy.
They are calling for better regulation and clearer information to protect these investors (more transparent gees, targeted education on how fees compound, taking financial literacy into account in regulated advice under MiFID/IDD)

Here's what happens when you zoom out:

• 1% annual fees isn't "nothing": over a typical 40-year retirement timeline, you're losing roughly 20% of your final portfolio.
  About 1 out of every 5 euros is just... gone.
  

• At 1.5%, nearly 40% evaporates, which is almost half of what you could have had, according to this British study. Almost 1 out of every 2 euros disappears, and you barely notice, because it happens over decades.

So please don't treat investment fees like your Spotify subscription: they're not flat, they're exponential. As your portfolio grows, so do your fees, even when the annual percentage stays the same.

If you haven't already, run the numbers on what fees will actually cost you long-term (management, transactions, whatever else your setup includes).

It's one of the few guarantees in the wildly unpredictable world of investing.

Take care,
Nessrine

P.S: Last week, I won the gold award for Best Financial Educator 2025 from Investir Day in France (Les Echos Le Parisien Group). I'm really touched by this recognition, it's given me the kick I needed to write more regularly. Thank you! 🙂

Sources cited in this edition:

"Why Do Investors Pay Higher Fees for Sustainable Investments?
An Experiment in Five European Countries", SSRN, May 2024

“Investment Costs: an unknown quantity
A literature review and state of play analysis”
A report for the Financial Services Consumer Panel, November 2014