Quick answer
The 30-year difference can be larger than the fee percentages suggest
In the scenario below, the 0.03% expense-ratio projection ends at $853,960, while the 1.00% projection ends at $694,709. The $159,251 difference comes from changing only the expense ratio; it is a hypothetical comparison, not a prediction of ETF performance.
Example scenario
One set of assumptions, four expense ratios
To isolate the modeled effect of the expense ratio, every scenario uses the same starting balance, contribution, return assumption and investment period.
Original comparison
Projected ending value and fee impact
Estimated Fee Impact compares each row with the same projection using a 0% expense ratio. Difference vs. Lowest-Fee Scenario compares each ending value with the 0.03% result.
| Expense Ratio | Projected Ending Value | Estimated Fee Impact | Difference vs. Lowest-Fee Scenario |
|---|---|---|---|
| 0.03% | $853,960 | $5,545 | $0 |
| 0.10% | $841,178 | $18,327 | $12,782 |
| 0.50% | $772,149 | $87,356 | $81,811 |
| 1.00% | $694,709 | $164,796 | $159,251 |
Values are rounded to the nearest dollar. The 0% baseline ends at $859,505 under the same assumptions.
10 / 20 / 30 years
How the projected gap expands over time
| Expense Ratio | 10 Years | 20 Years | 30 Years |
|---|---|---|---|
| 0.03% | $114,057 | $344,339 | $853,960 |
| 0.10% | $113,540 | $341,091 | $841,178 |
| 0.50% | $110,642 | $323,204 | $772,149 |
| 1.00% | $107,144 | $302,370 | $694,709 |
The projected gap between 0.03% and 1.00% is $6,913 after 10 years, $41,969 after 20 years, and $159,251 after 30 years.
Explanation
Why small annual fee differences can grow
What is an ETF expense ratio?
An expense ratio is the annual operating cost expressed as a percentage of fund assets. In this model, the entered expense ratio reduces the assumed annual total return before the monthly projection is calculated.
What is fee drag?
Fee drag is the projected reduction in ending value associated with the expense ratio. It includes both the modeled fee effect and the growth that the deducted amount no longer earns in later months. It is not a record of actual fees charged to an account.
Why does the difference expand?
Each scenario begins close together because the balance is smaller and relatively little time has passed. As contributions and projected growth build the balance, a small difference in the after-fee rate is repeatedly applied to a larger amount. That repeated effect creates the widening 10, 20 and 30-year gap shown above.
Cost is not the only ETF consideration
A lower expense ratio can leave more value available to compound when all other assumptions are equal, but fees are not the only consideration. An ETF comparison may also involve its objective, holdings, diversification, liquidity, tracking difference, tax treatment and fit with an investor’s plan. This guide does not identify a preferred fund or provide a buy or sell recommendation.
Methodology
How these projections were calculated
- The assumed annual total return is 8.00% before the expense ratio. After-fee annual return = 8.00% − expense ratio
- The after-fee annual return is divided by 12 to create the monthly rate used by WealthCalc. Monthly rate = after-fee annual return ÷ 12
- The $500 contribution is added at the beginning of each month, then that month’s return is applied. Year-end values are recorded after each group of 12 months.
- Estimated Fee Impact is the 0% fee ending value minus the selected fee scenario ending value. Difference vs. Lowest-Fee Scenario is the 0.03% ending value minus the selected scenario ending value.
For the underlying mechanism, read what ETF fee drag is and why it grows over time.
Assumptions and limitations
The model assumes a constant return and fixed monthly contribution for 30 years. It includes reinvested distributions only to the extent they are represented in the entered total-return assumption. It does not simulate market volatility, the sequence of actual returns, changing contributions or changing expense ratios.
Taxes, brokerage charges, bid-ask spreads, tracking differences and other investment costs are excluded. Results are hypothetical projections, not forecasts, guaranteed returns or statements of actual ETF performance.
Frequently asked questions
ETF Expense Ratio Cost FAQ
Is a 1% expense ratio high?
In this comparison, 1.00% creates more projected fee drag than the 0.03%, 0.10% and 0.50% scenarios. Whether a fee is high for a particular ETF also depends on what the fund provides, including its strategy, exposure and tracking results.
How much does a 0.5% expense ratio cost over 30 years?
Under this guide’s assumptions, the 0.50% scenario ends at $772,149. That is $87,356 below an otherwise identical 0% fee scenario and $81,811 below the 0.03% scenario. Different assumptions produce different results.
Does a lower expense ratio always mean a better ETF?
No. Cost matters, but investors may also compare the ETF’s objective, holdings, diversification, liquidity, tracking difference, tax considerations and suitability for their plan.
Are these projected ETF returns guaranteed?
No. The results are hypothetical projections based on a constant annual return assumption. Actual market returns vary and can be negative, and real outcomes may also be affected by taxes, trading costs, tracking differences and changes in fund expenses.
Content responsibility
About this WealthCalc guide
Official background: Investor.gov: Mutual Fund and ETF Fees and Expenses. WealthCalc calculated the examples on this page.
WealthCalc maintains this guide and is responsible for its calculation examples, methodology description and explanatory content. No professional financial review or regulatory approval is claimed. This material is for education only and is not financial, tax or investment advice.