What is an expense ratio?

The annual percentage a fund charges to run itself, deducted from the fund assets rather than billed to you. A 0.75% expense ratio on a $10,000 holding is about $75 a year, taken continuously and invisibly, which is why the cost is so easy to overlook.

Why is the true cost of a fee larger than the fee itself?

Every dollar taken as a fee is also a dollar that stops compounding. Over long horizons the forgone growth is usually larger than the fees themselves, so comparing only the headline percentages understates the difference between two funds.

Is a lower expense ratio always better?

Not automatically. A fee buys a service, and funds differ in what they hold, how they trade and how closely they track. The point of this calculator is to size the cost accurately so you can weigh it against what you are getting, not to argue that any particular fund is right for you.

Expense Ratio Calculator

A fund's annual fee is deducted quietly from assets, so its real cost is easy to miss. This shows the fees themselves and — usually larger — the compounding they prevent.

Starting amount$Monthly contribution$Annual return%Expense ratio%The fund's annual fee, e.g. 0.75.Years

Total cost of the fee: −$46,410
Balance with the fee: $224,962
Balance with no fee: $271,372
Fees actually paid: $21,759
Growth those fees prevented: $24,651
Share of the fee-free balance: 17.1%

Year	With the fee	Without
5	$67,546	$70,128
10	$91,248	$98,358
15	$123,269	$137,952
20	$166,526	$193,484
25	$224,962	$271,372

A fee buys a service — this sizes the cost so you can weigh it, not argue any fund is right for you.

How this is calculated

net monthly rate = (1 + annualReturn)^(1/12) - 1 - (annualFee / 12)

annualReturn: assumed gross return before any fee
annualFee: the expense ratio, deducted continuously through the year
growth forgone: the difference between the two balances, minus the fees actually paid

Worked example

A $50,000 balance growing at 7% for 25 years reaches about $271,000 with no fee. At a 0.75% expense ratio it reaches about $225,000. Roughly $22,000 of the $46,000 gap is fees paid; the rest is growth those fees prevented.

Common questions

What is an expense ratio?: The annual percentage a fund charges to run itself, deducted from the fund assets rather than billed to you. A 0.75% expense ratio on a $10,000 holding is about $75 a year, taken continuously and invisibly, which is why the cost is so easy to overlook.
Why is the true cost of a fee larger than the fee itself?: Every dollar taken as a fee is also a dollar that stops compounding. Over long horizons the forgone growth is usually larger than the fees themselves, so comparing only the headline percentages understates the difference between two funds.
Is a lower expense ratio always better?: Not automatically. A fee buys a service, and funds differ in what they hold, how they trade and how closely they track. The point of this calculator is to size the cost accurately so you can weigh it against what you are getting, not to argue that any particular fund is right for you.

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This tool performs arithmetic on the figures you enter. It is for informational and educational purposes only, is not investment, tax or financial advice, and is not a recommendation to buy, sell, or hold any security. Projections are assumptions, not forecasts. Always do your own due diligence.

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