Diversification and Fees: Two Things You Can Control

The idea in plain language

FactFINRA describes diversification as “the spreading of your investments both among and within different asset classes.”

Among asset classes means holding different kinds of things, such as stocks, bonds, and cash. Within an asset class means not relying on one company or one industry. A single company can have a terrible year for reasons that have nothing to do with the rest of the market. Diversification does not prevent losses; it limits how much one story can hurt you.

Fees are the other lever you control. A fund's expense ratio, account fees, and trading costs come out every year, whether returns are good or bad.

FactInvestor.gov illustrates a $100,000 investment growing 4 percent a year for 20 years: with a 0.25 percent annual fee it ends near $208,000; with 0.50 percent, near $198,000; with 1.00 percent, near $179,000.

Worked example

Try it: find one fee

1. Pick one fund or account you have or are considering.
2. Find its expense ratio and any account fees in its fee table or summary.
3. Multiply your balance by the fee percentage to see the yearly cost in dollars.
4. Ask the questions Investor.gov suggests: What are the total fees to buy and sell? What are the ongoing fees? How do they compare with similar products?

Checklist

• I can explain diversification among and within asset classes.
• I found the expense ratio or fee for one fund or account.
• I calculated the yearly fee in dollars.
• I know which fees are ongoing and which are one-time.

Limits of this lesson

• Diversification does not guarantee a profit or protect against loss.
• The lowest fee is not automatically the best choice; what you hold matters too.
• Returns in the example are hypothetical and constant; real markets are not.
• This page does not recommend any fund, broker, or allocation.

Sources

Facts on this page were checked against these sources on October 7, 2026. Figures marked Illustration are arithmetic examples, not forecasts.

1. FINRA, Asset Allocation and Diversification (opens in a new tab)
   Definition of diversification.
2. Investor.gov (SEC), Understanding Fees (opens in a new tab)
   Fee illustration and questions to ask.

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