ETF Costs Calculator
An expense ratio looks tiny and is not. It is charged every year, so it compounds against the portfolio in exactly the way the return compounds for it.
Net annual return
7.80%
- Fund value
- $21,192.76
- Cost of the expense ratio
- $396.49
- Cheaper fund value
- $21,489.51
- Saving from the cheaper fund
- $296.74
- Value with no fee at all
- $21,589.25
- Drag as a share of fee-free value
- 1.84%
Values update as you type. This calculator covers the single scenario its formula assumes — see Common Mistakes for what it leaves out.
The formula this calculator uses
net return = gross return - expense ratio; value = investment x (1 + net)^years
- V
- Portfolio value without fees
- r_g
- Gross annual return the fund earns
- r_e
- Expense ratio charged each year
- r_n
- Net return, equal to gross return minus expense ratio
How to check the result by hand
- 1
Subtract the expense ratio from the gross return
An 8% gross return with a 0.20% ratio compounds at 7.8%. Subtracting is correct because the ratio is quoted per year on the same base as the return.
- 2
Choose the horizon
Years, not months. The exponent is the number of years and every extra year compounds both the return and the fee against the whole balance.
- 3
Compound the initial investment
Raise one plus the net return to the number of years and multiply by the amount invested at the start.
- 4
Add each annual contribution
Each contribution compounds for the years after it is made, which makes the stream an ordinary annuity measured in years.
- 5
Repeat at the gross return to find the drag
The gap between the fee-free value and the actual value is the cost of the charge, and it is far larger than the ratio times the years.
For worked examples, common mistakes and the limits of this formula, read the full How To Calculate ETF Costs page.