Vanguard's S&P 500 Index Fund Charges About $3 a Year on $10,000. The Average Stock Fund Charges About $40.

The Vanguard S&P 500 ETF (NYSEMKT:VOO) charges an expense ratio of 0.03%, which is the share of assets the fund takes every year to pay its costs. For a $10,000 investment, that is about $3 annually.

The average stock mutual fund charges much more. The Investment Company Institute (ICI), the fund industry's trade group, put the average expense ratio of equity mutual funds at 0.40% in 2025, or about $40 a year for the same $10,000.

A $37 difference won't change anyone's year. But a fee is charged every year, and the money it pulls out can't compound. In three decades, a gap so small can grow to nearly the size of the original investment.

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A sticky average

The ICI's number is from its yearly report on fund fees, released in March. It's an asset-weighted average, so it shows what the typical invested dollar paid instead of the cost of the typical fund.

This arguably makes 0.40% a generous comparison. Count every fund share class equally, and the median stock mutual fund share class charged 0.99% in 2025.

Even weighted by assets, actively managed U.S. stock funds (those run by stock pickers) averaged 0.64%, and funds focused on growth stocks averaged 0.57%.

The asset-weighted number is lower partly because so much money has flowed into index funds. Index stock mutual funds averaged just 0.05%.

Also, the long slide in fund fees looks to have stalled. The average equity mutual fund charged 1.04% in 1996, and by 2024 it had dropped to 0.40%. But it didn't move in 2025.

In other words, the typical stock fund isn't getting cheaper fast enough to close the gap by itself.

What does the gap come to over 30 years?

To measure the gap, I'll assume the stocks in both funds earn 8% a year before fees, with dividends reinvested. That's a moderate assumption, not a prediction, and each fund's expense ratio comes off that return every year.

Take one $10,000 investment left alone for 30 years. With no fee at all, it'd reach around $100,600. After the Vanguard fund's 0.03% fee, it lands at around $99,800, so the fee costs about $800 over three decades. At the average fund's 0.40%, the same $10,000 lands at around $90,000. The gap is about $9,800, nearly the size of the original investment.

Now take an investor who adds $500 a month for 30 years instead, or $180,000 in all. The Vanguard fund would turn that into around $700,300, while the average-fee fund would reach about $653,500 -- about $47,000 less.

In other words, the lump-sum investor in the average fund winds up with about 10% less money. And that share hardly budges whether stocks earn 6% a year or 10%.

The monthly investor ends up about 7% behind, because the latest contributions get less time to compound. Against an actively managed fund at 0.64%, the lump-sum gap grows to about $15,600.

Sure, these numbers are simplified. They ignore taxes and trading costs and assume steady fees and returns.

Investors can control the fee

No one knows what the S&P 500 (SNPINDEX:^GSPC) will return over the next 30 years, as that depends on how much its companies earn and what valuation investors put on those earnings. The 8% number might be too high or too low, and the dollar gaps above would shift with it.

The fee, though, is published in advance. A fund charging 0.40% needs to beat the market by more than its added cost, year after year, before its investors come out ahead of an index fund. That's arguably a big ask over three decades.

Warren Buffett made a version of that point with a 10-year bet from 2008 through 2017. A fund tracking the S&P 500 returned 8.5% a year over that time, but the five funds of hedge funds picked to beat it averaged 0.3% to 6.5% a year -- after fixed fees Buffett put at about 2.5% of assets annually.

Yes, the Vanguard fund isn't risk-free. It holds the stocks in the S&P 500, so it will fall when the market falls, sometimes steeply. But a low fee doesn't make the fund any riskier. It just keeps more of whatever the market gives in the investor's account.

In the end, the fee is the one piece of a long-term return an investor can choose. For a 30-year plan based on U.S. stocks, I think that makes a fund like this worth a look as a core holding, maybe with money added monthly.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.