A small difference in expense ratio doesn’t feel like much year to year, but compounded over decades it can quietly cost you thousands of dollars. Compare two funds tracking a similar strategy to see what the fee difference actually costs.
How It’s Calculated
Each fund’s net annual return is estimated by subtracting its expense ratio from the gross return you expect before fees: Net Return = Gross Return − Expense Ratio. That net return is then compounded over the number of years you enter: Future Value = Initial Investment × (1 + Net Return / 100) ^ Years. For example, with a $10,000 initial investment, a 7% expected gross return, and 25 years, a fund charging 0.03% grows to about $53,895, while a fund charging 0.75% grows to about $45,522 — a difference of roughly $8,373 driven entirely by the fee gap.
A Note on This Comparison
This calculator assumes both funds earn the same gross return before fees — in reality, returns can differ for reasons unrelated to cost, such as tracking error or slight differences in holdings. Expense ratios are published in each fund’s prospectus and can change over time, so treat this as an illustration of how fee drag compounds rather than a precise forecast. The comparison also doesn’t account for other cost differences between funds, like bid-ask spreads, trading commissions, or tax efficiency, which can matter just as much as the stated expense ratio.
How to Use This Comparison
- Enter the same starting investment, expected gross return, and holding period for both funds.
- Enter each fund’s current expense ratio from its prospectus or most recent shareholder report.
- Select Compare Funds to estimate each future value and the dollar difference caused by the fee gap.
- Compare tracking, holdings, taxes, spreads, and risk separately.
Result Interpretation
The difference shown is the estimated amount retained by the lower-cost fund under identical gross-return assumptions. It is not a prediction that either fund will achieve the entered return or that the lower-cost fund will necessarily outperform.
Official Fee Information
The SEC explains that mutual-fund and ETF fees reduce investment returns and that even small fee differences can create large differences over time. Confirm expense ratios and other charges in current fund documents. See the SEC’s Mutual Fund and ETF Fees and Expenses Investor Bulletin.
FAQ
Does the expense ratio come out as a separate bill?
Usually no. Operating expenses are paid from fund assets and reflected in fund performance and net asset value.
Does this include every ETF cost?
No. Bid-ask spreads, brokerage charges, premiums or discounts, taxes, and transaction costs can also affect results.
What This Means
On $10,000 invested for 25 years at an assumed 7% gross return, the fund charging 0.03% ends up worth about $8,373 more than the one charging 0.75% — money the higher-cost fund’s investors gave up purely to fees, not to weaker performance. That gap exists only because of cost, assuming both funds otherwise perform identically before fees.
Related Tool
To see a specific ETF’s actual total and annualized return, including dividends, use our ETF Return Calculator.
Expense Ratio Cost on a $10,000 Investment
This table assumes the same 7% gross annual return, a $10,000 starting investment, no additional contributions, and a 25-year holding period. Only the expense ratio changes.
| Expense ratio | Net assumed return | Estimated value after 25 years |
|---|---|---|
| 0.03% | 6.97% | $53,895.18 |
| 0.10% | 6.90% | $53,020.35 |
| 0.25% | 6.75% | $51,191.41 |
| 0.50% | 6.50% | $48,276.99 |
| 0.75% | 6.25% | $45,522.22 |
Under these assumptions, the difference between 0.03% and 0.75% is $8,372.95. The gap is larger than simply multiplying the annual fee difference by the original $10,000 because the money removed for expenses also loses future compounding.
What an Expense Ratio Means in Dollars
An expense ratio is the fund’s annual operating expenses expressed as a percentage of assets. A 0.25% expense ratio corresponds to about $25 per year for each $10,000 invested at that balance. The charge is generally reflected in fund performance rather than sent as a separate bill. Because the balance changes, the dollar cost also changes from year to year.
Common Comparison Mistakes
- Entering 25 instead of 0.25: enter the expense ratio as a percentage, exactly as shown in the prospectus.
- Comparing unlike funds: a stock index fund and a bond fund do not have the same strategy or risk.
- Ignoring tracking difference: two funds following the same index may not deliver identical before-fee results.
- Ignoring spreads and taxes: trading costs and tax efficiency can matter alongside the expense ratio.
- Using an unrealistic gross return: test several scenarios instead of treating one return as a forecast.
- Assuming the fee never changes: verify the current expense ratio in the latest prospectus.
How to Make a Fair Fund Comparison
Start with funds that pursue the same objective or track the same index. Then compare expense ratios, holdings, tracking difference, bid-ask spreads, assets, trading volume, tax treatment, and fund structure. A lower fee is valuable when the funds are otherwise comparable, but cost alone does not establish that two funds are substitutes.
For a broader growth projection that includes regular contributions, use the Compound Interest Calculator. To express a future balance in today’s purchasing power, use the Inflation-Adjusted Return Calculator.
Additional Official Resources
Last reviewed September 18, 2026. For educational purposes only. Results are hypothetical, assume constant returns and fees, and are not financial, tax, or investment advice.