Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A recurring annual expense ratio compounds against the balance every single year it's held, so its true cost only becomes fully visible when measured as a dollar figure across the entire holding period, rather than judged by its small-looking annual percentage in any single year taken alone.
Before you rely on it
What to check
Calculate the compounded dollar cost over your actual expected holding period, not just the headline annual percentage figure viewed in isolation.
The common error
Where people go wrong with expense ratio cost calculator
Judging an expense ratio's impact from its small annual percentage alone. Compounded across a long holding period, that percentage removes a real, sometimes substantial dollar amount that a single-year view doesn't reveal.
Sensitivity evidence
How gross annual return changes the estimated value lost to fees
| Gross annual return | Estimated value lost to fees | Ending value after fees |
|---|---|---|
| 5.0% | $72,052 | $266,584 |
| 6.0% | $90,552 | $338,635 |
| 7.0%worked example | $113,556 | $429,187 |
| 8.0% | $142,104 | $542,743 |
| 9.0% | $177,461 | $684,848 |
Every input, tested
Which input moves the estimated value lost to fees most
| Input | Tested from | To | Estimated value lost to fees at each end | Swing |
|---|---|---|---|---|
| Investment horizon | 19.0 years | 31.0 years | $59,093 to $205,701 | $146,608 (129%) |
| Annual fee | 0.750% | 1.3% | $87,521 to $138,159 | $50,638 (45%) |
| Gross annual return | 6.0% | 8.0% | $90,552 to $142,104 | $51,553 (45%) |
| Starting investment | $90,000 | $110,000 | $102,201 to $124,912 | $22,711 (20%) |
Two variables at once
Estimated value lost to fees by gross annual return and starting investment
| Gross annual return \ Starting investment | $80,000 | $100,000 | $120,000 |
|---|---|---|---|
| 5.0% | $57,641 | $72,052 | $86,462 |
| 6.0% | $72,441 | $90,552 | $108,662 |
| 7.0% | $90,845 | $113,556 | $136,267 |
| 8.0% | $113,683 | $142,104 | $170,525 |
| 9.0% | $141,968 | $177,461 | $212,953 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Starting investment | $100,000 |
| Gross annual return | 7.0% |
| Annual fee | 1.0% |
| Investment horizon | 25.0 years |
| Estimated value lost to fees | $113,556 |
| Ending value after fees | $429,187 |
Complete evidence
Full projection schedule
Show all 25 rows
| Period | Opening balance | Contribution | Growth | Ending balance |
|---|---|---|---|---|
| Year 1 | $100,000 | $0.00 | $7,000 | $107,000 |
| Year 2 | $107,000 | $0.00 | $7,490 | $114,490 |
| Year 3 | $114,490 | $0.00 | $8,014 | $122,504 |
| Year 4 | $122,504 | $0.00 | $8,575 | $131,080 |
| Year 5 | $131,080 | $0.00 | $9,176 | $140,255 |
| Year 6 | $140,255 | $0.00 | $9,818 | $150,073 |
| Year 7 | $150,073 | $0.00 | $10,505 | $160,578 |
| Year 8 | $160,578 | $0.00 | $11,240 | $171,819 |
| Year 9 | $171,819 | $0.00 | $12,027 | $183,846 |
| Year 10 | $183,846 | $0.00 | $12,869 | $196,715 |
| Year 11 | $196,715 | $0.00 | $13,770 | $210,485 |
| Year 12 | $210,485 | $0.00 | $14,734 | $225,219 |
| Year 13 | $225,219 | $0.00 | $15,765 | $240,985 |
| Year 14 | $240,985 | $0.00 | $16,869 | $257,853 |
| Year 15 | $257,853 | $0.00 | $18,050 | $275,903 |
| Year 16 | $275,903 | $0.00 | $19,313 | $295,216 |
| Year 17 | $295,216 | $0.00 | $20,665 | $315,882 |
| Year 18 | $315,882 | $0.00 | $22,112 | $337,993 |
| Year 19 | $337,993 | $0.00 | $23,660 | $361,653 |
| Year 20 | $361,653 | $0.00 | $25,316 | $386,968 |
| Year 21 | $386,968 | $0.00 | $27,088 | $414,056 |
| Year 22 | $414,056 | $0.00 | $28,984 | $443,040 |
| Year 23 | $443,040 | $0.00 | $31,013 | $474,053 |
| Year 24 | $474,053 | $0.00 | $33,184 | $507,237 |
| Year 25 | $507,237 | $0.00 | $35,507 | $542,743 |
Where the inputs come from
Starting investment and gross return describe the portfolio, and the expense ratio is the fund's annual cost as a percentage of assets, listed in the prospectus and on fund fact sheets. Use the total expense ratio, including management and administrative fees, not just the headline management fee. For a portfolio of several funds, use the weighted average. The time horizon should match how long you will hold the fund.
Using the estimated value lost to fees in a real decision
Choose the cheaper one unless the more expensive one offers something specific.
When the result stops applying
The expense ratio is only one layer of cost; trading spreads, taxes on distributions and sales charges are not included. The comparison assumes both funds earn the same gross return, which holds for funds tracking the same index but not for active funds where returns differ. Returns quoted by funds are usually already net of the expense ratio.
What to compare it with
Use the ETF fee calculator for exchange-traded funds and the investment fee drag calculator when an advisor fee is on top. If you own several funds, calculate the weighted average expense ratio first. Cheap index funds are widely available from major providers, so an expensive fund needs a reason to justify the difference.
People also ask
Frequently asked questions
What is a good expense ratio?
Broad index funds and ETFs often charge between 0.03% and 0.20%. Actively managed funds commonly charge 0.5% to 1% or more, so they need to beat the market by that much each year to break even.
Is the expense ratio deducted from my account?
Not as a separate charge. It is taken from the fund's assets daily, so it lowers the fund's reported return without appearing on your statement.
Do expense ratios ever change?
Yes. Funds can raise or lower them, and competition has pushed the average for index funds down over the years, so check the current figure.