Are ETF Fees Worth It?

ETF fees look tiny — often a fraction of a percent per year — but they quietly compound in the background. The question is not “are fees bad?” but “what am I getting in return for this fee?”

How ETF Fees Work

Most ETFs charge an ongoing annual fee called the MER (management expense ratio). It is expressed as a percentage of the assets in the fund. For example, if an ETF has an MER of 0.20%, it charges $2 per year for every $1,000 invested.

You do not pay this fee as a separate line item. Instead, it is taken out inside the fund before returns are reported. What you see in the performance chart is already “after fees.”

When ETF Fees Are Clearly Worth It

Fees can be worth paying when the ETF offers:

Broad diversification you cannot easily build yourself.
Efficient access to a complete market or asset class.
Reasonable tracking of the index it promises to follow.
Low turnover and transparent holdings.

For example, a broad stock market ETF with a very low MER may replace dozens of individual stocks and hours of research. In that case, the fee is paying for simplicity, diversification, and convenience — and is usually well worth it.

When ETF Fees Become a Problem

Fees are more questionable when they are high relative to what the ETF does. Red flags include:

Narrow, speculative themes with much higher fees.
Complex structures that are hard to understand.
Little diversification compared to cheaper alternatives.

Two ETFs might track very similar indexes, but one charges 0.08% and the other 0.70%. Over a single year, the difference is small. Over 20 or 30 years, the higher fee can eat a meaningful slice of your ending balance. Our fee impact calculator can help you visualize this.

Compare Fees Within the Same Category

An ETF’s fee should be judged against similar products. For example, compare broad Canadian equity ETFs against each other, or global bond ETFs against their peers. Within a category:

Look for funds that are low-cost and well diversified.
Avoid paying premium fees for nearly identical exposure.
Check tracking error — does the fund follow its index closely?

Our guide ETF Expense Ratios and Fees dives deeper into the details.

The Real Question: Net Value, Not Just Cost

The goal is not simply to minimize fees at all costs. It is to maximize your net outcome: a combination of returns, risk, and convenience. A slightly higher fee may be justified if:

The ETF gives you easier global diversification.
It simplifies your portfolio (fewer moving pieces).
It fits your tax situation better.

But if two ETFs are nearly identical and one is clearly cheaper, the higher-fee version is hard to justify.

FAQs

What is considered a “low” ETF fee?: It depends on the market and asset class, but many broad market index ETFs charge well under 0.25% per year. Some are below 0.10%. Niche or actively managed ETFs often charge more.
Should I avoid all high-fee ETFs?: Not automatically. A higher-fee ETF might be reasonable if it offers something truly unique that you need. But in most core portfolio areas, low-cost options are available and worth prioritizing.
Where should I go next?: Read Do ETF Fees Come Out Automatically? and What Is an ETF MER? for more detail on how ETF fees work behind the scenes.