The S&P 500 reached another all-time high last week, as unemployment ticked down a bit and chip makers continued to post outsized returns. For everyone concerned about a bubble, consider this: The S&P 500 returned about 16% in 2025. Fourteen of those percentage points came from earnings growth.[1] This means that the higher returns investors are earning come not from speculation, but actual revenue growth.
That growth is not free, however. A recent study showed that 41% of the survey participants said they did not pay any fees for their mutual funds or ETFs.[2] Now, there are certainly mutual funds and ETFs that are no-load, meaning there is not an upfront commission being paid to an advisor. And there are funds that don’t pay trails, or 12b-1 fees, to an advisor. But I’m not aware of any fund that is completely free.
These costs are built into the fund and just reduce performance. For example, if a fund cost 1% a year, and it earned 9%, the investor would see an 8% return. There’s nothing on their statements to show the cost of the fund; investors only see the net.
As an investor, you can see fund costs by looking at the prospectus for each fund, or by using online sites like Morningstar and Yahoo Finance. If you’re working with an advisor, they should be upfront about their commissions or fees, and the underlying fund costs.
You may also think that because you’re in a passive index fund, you’re not paying anything. While the fees are certainly lower than an actively managed fund, that is, one with a manager or team of managers who decide what companies the fund will hold, there are drawbacks. Most indexes are cap-weighted, meaning the S&P 500 is not one share of each of the 500 companies. Each company is in the index in proportion to its size. Currently, the top ten stocks make up over 40% of the index. You may not be as diversified as you think.
Now you may say, well, I still don’t pay anything, because I buy individual stocks using an app. You’re still paying. Those companies make money on order flows, or how the trade is processed. A great explanation is in Michael Lewis’s book “Flash Boys.” Beyond that, there are often high costs to move money out of those apps. And your data around trades and investments is also up for sale. Remember that when it comes to apps, if it’s free, your data is the product.
Regardless of how you’re investing, it is useful to see the full picture of what you’re paying, and what you are receiving in exchange.
Your action item this week is to start gathering your receipts for any charitable contributions you made in 2025, to be ready for tax season.
Our events for 2026 are on our website, including our Financial Foundations class tonight. On the 20th, our signature Women, Wine & Wisdom™ event goes co-ed with a market update. Join us to hear a recap of 2025 and what we’re thinking about 2026.
CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[1]https://stocks.apple.com/ASfeUy8zSRoGoNe-Zr81TlA
[2]FINRA study shows retail investor knowledge gaps | Financial Planning