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  • Writer's pictureDr. Andy Lawson Ph.D.

Can you really be $250,000 wealthier if you lower your investment costs?

Updated: Feb 7, 2023

Under quite reasonable assumptions, it is possible to be $250,000 wealthier if you reduce investment expenses


An investor has a $500,000 investment portfolio and a 15-year investment horizon. She contributes $10,000 per year to her portfolio. She asks the investment advisory firm of a major national financial services provider to manage her portfolio.

She tells the investment advisory firm about her 15-year horizon, that her investment goal is growth and that she is able to tolerate a medium amount of risk.[1] The advisory firm decides to invest 60% of her account in stock mutual funds and 40% in bond mutual funds. We therefore assume she earns an investment return of 7.5% per year.[2]

Our investor pays a portfolio management fee of 0.95% of the value of her account per year. She also pays a mutual fund expense ratio of 0.85% per year. She therefore pays a total investment cost of 1.8% per year.

For the sake of simplicity, we assume she is not charged an account maintenance fee, the mutual funds the advisor has purchased for her are all no-load funds and that transaction costs are zero.[3]

Under these assumptions, her portfolio would grow from $500,000 to about $1,389,000. This is shown in the Average Expense column in the table below.


Average Expense

Low Expense

Initial portfolio value



Annual contribution



Portfolio Management Fee



Portfolio Average ETF Expense Ratio



Average Annual Return



Investment horizon (years)



Portfolio value at end of horizon



In the Low Expense column, she is charged a portfolio management fee of 0.50% and pays an expense ratio of 0.05% for a total investment cost of 0.55%. After 15 years, her portfolio would grow from $500,000 to around $1,638,000. Therefore, by reducing her investment costs from 1.85% to 0.55%, she will be about $249,000 wealthier.

And after 20 years, she will be about $462,000 wealthier (not shown).

How reasonable is our illustration?

First, is 1.8% per year a reasonable estimate of the total investment costs an average investor pays? Yes—the average annual expense ratio of a large blend mutual fund is around 1%.[5] And the average fee for a professional financial advisor is around 1% for the first $1 million.[6] Hence, it is reasonable to assume the average investor pays 2% of the value of their account per year in investment costs. And there are many different types of fees and expenses in addition to the expense ratio and portfolio advisory fee illustrated above which could raise the total investment cost significantly.[7]

Does the conclusion hold for different assumptions?

The results above tell us a reduction in investment costs can have a major impact on future wealth. Does this conclusion hold if we change the assumed average rate of return of 7.5%? Yes, the increase in wealth caused by moving from the expensive portfolio to the cheap portfolio as a percentage of the expensive portfolio is about the same no matter what annual rate of return we assume.

Is a total investment cost of 0.55% per year achievable?

Is it possible to experience the returns of a professionally-managed portfolio and pay only 0.55% in total investment costs? Yes, Freshfield provides expert portfolio management for a total investment cost of 0.55% per year.[8] We are able to achieve this by (1) using the services of the most technologically-advanced and lowest-cost brokerage in the U.S., (2) having the expertise to identify mutual funds and ETFs which provide the benefits of exposure to stock and bond markets at a fraction of the cost of the average mutual fund or ETF and (3) having highly efficient business operations.[9]


As the simple but realistic illustration above shows, investment costs can have a huge impact on future wealth; it is critical to minimize investment costs, not least because costs compound. And costs are one of the few factors in investment management directly under the investor’s control.


Dr. Andy Lawson is the principal of Freshfield Investments, a Registered Investment Advisory firm in Plano, Texas serving clients locally and nationwide. Freshfield provides investment management and financial planning as a fee-only, fiduciary. To book a virtual or in-person complimentary consultation, please visit our Contact page.


[1] She expects her portfolio to grow over her 15-year horizon but accepts it could lose up to 25% in a single year within that period.

[3] To provide a perspective for our assumed 7.5% annual return, the average return of a portfolio invested 60% in the broad U.S. stock market and 40% in 10-year government bonds between 1973 and 2018 is around 9% per year. Source: Faber, Global Asset Allocation, 2015 and Morningstar Index Database, 2018.

[3] This is not usually the case. Many investment advisors purchase shares of funds which have front-end loads; such funds charge the investor a fee to purchase their shares. And many popular custodians charge annual account maintenance fees. Also, most investment accounts are charged transaction costs for the buying and selling of shares within their accounts. These fees and costs can significantly increase the investor’s total annual investment cost.

[4] There are other methods to estimate net returns from gross returns and expenses. We find the simple annual subtraction method provides a reasonable approximation of net returns.

[5] Source: Ibbotson mutual fund database 12/2018

[6] Source: Investopedia 10/2018.

[7] Including transaction costs, markups, sales loads, surrender fees and commissions.

[8] Freshfield charges an advisory fee ranging from 0.25% per year to 0.80% per year based on account size. A $500,000 account is charged 0.50% per year. The funds Freshfield uses to build portfolios for clients have zero load fees and an average expense ratio of around 0.05%. Freshfield pays client’s transaction costs and Freshfield clients pay no account maintenance fees.

[9] Freshfield uses the custody and brokerage services of the largest electronic trading platform in the U.S. Please contact Freshfield for details.


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