Investing Just Got More Expensive—Unless You Know Where To Look

Low-cost investing pioneers continue slashing fees while newer exchange-traded funds quietly reverse the industry’s decades-long trend toward cheaper investing.

The Vanguard S&P 500 ETF VOO briefly overtook the State Street managed SPDR S&P 500 ETF SPY as the world's largest ETF on Feb. 18, only for SPY to reclaim the top spot within days, The Economist reported recently.

Both S&P 500 tracking funds now manage over $620 billion in assets, with VOO charging just 0.03% and SPY 0.09% annually.

Don't Miss:

• It’s no wonder Jeff Bezos holds over $250 million in art — this alternative asset has outpaced the S&P 500 since 1995, delivering an average annual return of 11.4%. Here’s how everyday investors are getting started.
• Dogecoin millionaires are increasing – investors with $1M+ in DOGE revealed!

The price war among industry giants runs counter to what’s happening with newer market entrants. According to Morningstar data cited by The Economist, recently launched ETFs have reduced their fee advantage over mutual funds to just 0.2%, down from 0.7% in 2014.

Most ETFs created in recent years charge 0.5% or higher, bucking the historical downward trend in investment costs.

The pricing divide reflects fundamental differences in investment focus. While established funds typically track broad market indices, newer offerings pursue specialized strategies—environmentally conscious investments, stocks with specific characteristics, or actively managed approaches.

Trending: If You're Age 35, 50, or 60: Here’s How Much You Should Have Saved Vs. Invested By Now

Scale economics drive the bifurcation. The largest 15 equity ETFs hold $3.9 trillion, exceeding the combined assets of the next 100 funds. According to the Economist, which cited data from Citigroup, roughly half of American ETFs operate at a loss due to insufficient size to cover operational expenses.

Industry leader Vanguard continues pushing costs lower, reducing fees on 87 funds in February and lowering its average expense ratio from 0.08% to 0.07%. With $10 trillion under management—double its 2018 assets—the company leverages massive scale economies while focusing on straightforward index investments.

The relationship between mainstream funds and specialized offerings creates what The Economist describes as a “strangely symbiotic” dynamic. Low-cost core holdings reduce overall portfolio expenses, potentially creating budget space for more expensive specialized investments.

See Also: BlackRock is calling 2025 the year of alternative assets. One firm from NYC has quietly built a group of 60,000+ investors who have all joined in on an alt asset class previously exclusive to billionaires like Bezos and Gates.

For cost-conscious investors, the widening fee gap presents a clear choice. The traditional ETF value proposition—inexpensive broad market exposure—remains intact among established players, while specialized strategies come with premium pricing.

Average industry fees may plateau not from reaching efficiency limits, but because more investors choose specialized products with inherently higher costs. Those sticking with mainstream index offerings, The Economist said, may still realize “trillions of dollars in savings” in coming years.

Read Next:

• Many are surprised by Mark Cuban's advice for lotto winners: Cash or annuity?
• The secret weapon in billionaire investor portfolios that you almost certainly don't own yet. See which asset class has outpaced the S&P 500 (1995-2024) – and with near-zero correlation.