There’s been a huge improvement in the services offered by the financial industry in recent years, with low-fee funds and better investment options arriving very much to the benefit of the everyday investor. Gone are the days when your only option was an overpriced share transaction and questionable advice.

But with low-fee index funds now front and centre of the FIRE movement, it’s worth asking a question that doesn’t get asked enough: do index fund fees matter more than performance — or are some investors so focused on the fee line that they’re missing the bigger number entirely?

The point of this article isn’t to tell you which specific fund to pick. It’s to show that fees, while important, are only one variable in the equation — and on their own, they’re not the variable that matters most. We’ll use two real NZ-available funds to illustrate the maths, but the takeaway isn’t “pick this one over that one.” It’s “don’t let fee comparison be the only comparison you make.”

Why Index Fund Fees Do Matter

Fees make a substantial difference to a portfolio’s performance over the long term. Here’s what that looks like in practice.

Take $100,000 invested over 20 years, comparing a fund charging 0.15% per year against one charging 1.15% — not unusual figures for a passive fund versus a managed fund.

Gross Return	Low Fee (0.15%) — 20yr Value	High Fee (1.15%) — 20yr Value	Cost of the Fee Gap
6%	$311,758	$257,851	$53,907
7%	$376,262	$311,758	$64,504
8%	$453,318	$376,262	$77,056

At an 8% gross return — roughly the long-term market average — moving from a 1.15% managed fund to a 0.15% passive fund is worth $77,056 on $100,000 over 20 years. That’s not a rounding error, it’s a meaningfully different retirement, especially as you increase the size of the investment.

This assumes, of course, that both funds achieve the same gross return before fees. Some managed funds are excellent and have delivered consistently strong results. But studies have repeatedly shown that over a 10+ year horizon, only around 5–20% of actively managed funds outperform the market — and there’s no reliable way to know in advance which ones will. So the case for low fees, all else being equal, is a strong one. (For more on why FIRE investors lean so heavily on this logic, see our guide on the 4% Rule and whether it works in New Zealand.)

But Fees Are Only Half the Equation

Here’s where it gets more interesting. To illustrate — not to make a recommendation — let’s compare two real options available to NZ investors right now, both through Kernel, purely as an example:

• Total World Fund: 0.12% p.a. management fee, plus a $50/year platform subscription. Tracks the FTSE Global All Cap Index — a genuinely global portfolio spanning developed and emerging markets, not reliant on any single country. Risk rating: 5/7.
• S&P 500 Fund: 0.25% p.a. management fee — over double the Total World Fund’s rate. Tracks 500 of the largest US-listed companies. Many of these operate globally, but the fund itself carries no exposure outside the US, and sits at a 6/7 risk rating.

Lower fees, more diversification — the Total World Fund looks like the obvious pick on cost grounds alone. But look at how the two indices have actually performed:

Horizon	S&P 500 (US Large Cap)	FTSE Global All Cap (Global Total Market)
5-Year Annualised	~13.75%	~10.68%
10-Year Annualised	~15.49%	~12.61%
20-Year Annualised	~11.18%	~8.85%

Figures are indicative and will move over time — check current numbers via Kernel’s fund performance page, or whichever fund you’re using, before relying on them for a decision.

Over the long run, the S&P 500 has outperformed the FTSE Global All Cap by roughly 2.3–3.1 percentage points a year. Compounded over two decades, that’s a meaningfully larger gap in outcomes than the fee difference between the two funds.

When Fund Performance Matters More Than Fees

Imagine you’re so focused on avoiding high fees that you choose the Total World Fund at 0.12% (plus the $50/year), while a friend goes with the S&P 500 fund at 0.25%. Again, $100,000 invested for 20 years, using the historical annualised returns above:

Metric	FTSE Global All Cap	S&P 500
Gross Annual Return	8.85%	11.18%
Annual Fees Charged	0.12% + $50/yr	0.25%
Net Annual Return	~8.72%	~10.93%
20-Year Value on $100,000	~$532,000	~$796,000

Even paying more than double the management fee, the S&P 500 investor ends up roughly $264,000 ahead — because the underlying return gap dwarfs the fee gap.

To make the point even more starkly: imagine a hypothetical actively managed S&P 500 fund charging a steep 1.12% fee — nearly ten times the Total World Fund’s cost. Even then:

Metric	FTSE Global All Cap	Hypothetical High-Fee S&P 500
Net Annual Return	~8.72%	~10.06%
20-Year Value on $100,000	~$532,000	~$680,000

That’s still roughly $148,000 in the high-fee fund’s favour. Even a 1% annual fee drag is overpowered by a meaningfully higher underlying return, compounded over two decades.

The Caveat

To be clear: this is not a suggestion to put everything into the S&P 500, or into any single fund named in this article. Past performance doesn’t guarantee future performance, and a less diversified, single-country portfolio carries real risk that isn’t guaranteed to be compensated for. The US has outperformed over the past couple of decades — that doesn’t mean it will keep doing so. Nobody knows for certain, and any adviser who claims otherwise is usually trying to justify a fee, not give you an honest answer.

The S&P 500 vs FTSE Global All Cap comparison above is just the clearest real-world example available to illustrate the maths. The same logic applies whichever funds you’re actually weighing up — the question about index fund fees is never just “which one is cheaper,” it’s “which one is likely to deliver the return I need, at a fee and a risk level I’m comfortable with.”

This is exactly where a genuinely independent financial adviser — paid a fixed fee, not a commission — earns their keep. (Get in touch if you’d like a recommendation for someone suitable.)

We’re also not suggesting you pay up for an actively managed fund chasing outperformance — remember, only 5–20% of them actually deliver it.

The Real Takeaway

Index fund fees matter, and lower fees meaningfully protect your long-term returns — don’t ignore them. But fee comparison on its own is an incomplete comparison. Performance, diversification, and risk all belong in the same conversation. Chasing the lowest number on the fee line, without asking what you’re giving up to get there, is its own kind of mistake.

If you’re weighing this up for your own portfolio, our Barista FIRE breakdown covers the wider FIRE-timeline decision this sits inside.

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Nothing in this post constitutes financial advice — it’s general in nature. Please consult a qualified financial adviser licensed in your jurisdiction for advice specific to your situation.