Welcome to our Expense Ratio Calculator. This tool allows you to calculate the impact of ongoing ETF fees on your investment results. Enter your expected return and the annual costs (TER – Total Expense Ratio) to see how these expenses affect your future value.

Note: Even small ongoing costs can have significant impacts over a long period.

Expense Ratio Calculator for ETF Fees

ⓘ Select the type of investment.
ⓘ Enter the one-time investment amount in dollars.
ⓘ Enter the investment period in years.
ⓘ Enter your expected return percentage.
ⓘ Enter the ETF's annual expense ratio percentage.

Impact of Expense Ratio (Fees) of ETF Investments on Future Value

The Total Expense Ratio (TER) of an ETF indicates the annual costs as a percentage of invested capital. To calculate the impact of these costs on the future value, the calculator performs two calculations:

First, it calculates the future value without considering the TER (Total Expense Ratio) by applying the annual return over the entire investment period. The formula for this is:

One-Off Investment: \(E_{\text{without costs}} = P \times (1 + r)^n\)

Monthly Contributions: \(E_{\text{without costs}} = C \times \left( \frac{(1 + r)^n – 1}{r / 12} \right)\)

Annual Contributions: \(E_{\text{without costs}} = C \times \left( \frac{(1 + r)^n – 1}{r} \right)\) [/su_panel]

Then, it calculates the future value considering the TER by reducing the return by the annual costs. The formula for this is:

[su_panel color=”#000000″ border=”3px solid #5271ff”] One-Off Investment: \(E_{\text{with costs}} = P \times (1 + (r – \text{TER}))^n \)

Monthly Contributions: \(E_{\text{with costs}} = C \times \left( \frac{(1 + (r – \text{TER}))^n – 1}{(r – \text{TER}) / 12} \right)\)

Annual Contributions: \(E_{\text{with costs}} = C \times \left( \frac{(1 + (r – \text{TER}))^n – 1}{r – \text{TER}} \right)\)


Where:

  • E = Future value
  • P = Principal (initial investment)
  • C = Contribution amount
  • r = Annual return rate
  • n = Number of years
  • TER = Total Expense Ratio

The difference between these two future value amounts shows the impact of ETF fees on your investment. This difference illustrates how significantly ongoing costs can affect the performance of your investment over time.

Why ETF Expense Ratios Matter

While ETFs are known for their generally low fees compared to actively managed mutual funds, the expense ratio can still have a substantial impact on your long-term returns. Here’s why:

  1. Compound Effect: The expense ratio is deducted from your returns annually. This means you’re not just losing the fee amount, but also the potential returns that money could have earned if it had remained invested.
  2. Long-Term Impact: Over a long investment horizon, even small differences in expense ratios can lead to significant differences in wealth accumulation.
  3. Opportunity Cost: The money paid in fees is money that’s not working for you in the market. Over time, this opportunity cost can be substantial.

Strategies to Minimize the Impact of Expense Ratios

  • Compare ETFs: When choosing between similar ETFs, consider the expense ratio as a key factor.
  • Focus on Total Costs: Remember to factor in other costs like trading commissions and bid-ask spreads.
  • Consider Your Investment Horizon: The longer you plan to hold an ETF, the more impact its expense ratio will have.
  • Regularly Review Your Portfolio: As the ETF market evolves, new products with lower fees may become available.

By understanding and minimizing the impact of expense ratios, you can potentially save thousands of dollars over the life of your investments. Use our calculator to see how different expense ratios could affect your specific investment scenario.

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