Investing
Value drag of the fee
Compounding the same contributions at the gross return gives what the portfolio would have been worth with no fee at all. The difference is the entire cost of the charge.
The Formula
drag = fee-free value - actual value
Compounding the same contributions at the gross return gives what the portfolio would have been worth with no fee at all. The difference is the entire cost of the charge.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| V_g | Fee-free value | currency | Value at the gross return. |
| V_n | Actual value | currency | Value at the net return. |
| D | Value drag | currency | What the expense ratio has cost. |
What Each Symbol Means
V_gcurrency
Fee-free value
Value at the gross return.
V_ncurrency
Actual value
Value at the net return.
Dcurrency
Value drag
What the expense ratio has cost.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate etf costs page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate ETF Costs, filed under Finance. Every number the guide produces comes from substituting into this one line.