Expense Ratio Impact Calculator Formula
Understand the math behind the expense ratio impact calculator. Each variable explained with a worked example.
Formulas Used
Low-Cost Fund Value
low_cost_value = initial_investment * pow(1 + (annual_return - low_expense) / 100, years)High-Cost Fund Value
high_cost_value = initial_investment * pow(1 + (annual_return - high_expense) / 100, years)Amount Lost to Fees
cost_difference = initial_investment * pow(1 + (annual_return - low_expense) / 100, years) - initial_investment * pow(1 + (annual_return - high_expense) / 100, years)Percentage Lost to Fees
pct_lost = initial_investment * pow(1 + (annual_return - low_expense) / 100, years) > 0 ? (initial_investment * pow(1 + (annual_return - low_expense) / 100, years) - initial_investment * pow(1 + (annual_return - high_expense) / 100, years)) / initial_investment * pow(1 + (annual_return - low_expense) / 100, years) * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
initial_investment | Initial Investment(USD) | 100000 |
annual_return | Gross Annual Return(%) | 8 |
low_expense | Low-Cost Fund Ratio(%) | 0.05 |
high_expense | High-Cost Fund Ratio(%) | 1 |
years | Investment Period(years) | 30 |
How It Works
The Hidden Cost of Expense Ratios
Expense ratios are annual fees charged by mutual funds and ETFs, expressed as a percentage of assets.
How Fees Compound Against You
Net Return = Gross Return - Expense Ratio
A 1% difference in fees may seem small, but over 30 years it can consume 25%+ of your wealth.
Typical Expense Ratios
| Fund Type | Typical Ratio | |---|---| | Index ETF | 0.03% - 0.20% | | Active Mutual Fund | 0.50% - 1.50% | | Target Date Fund | 0.10% - 0.75% |
Worked Example
$100,000 invested for 30 years at 8% gross return. Compare 0.05% vs 1.0% expense ratio.
initial_investment = 100000annual_return = 8low_expense = 0.05high_expense = 1years = 30
- 01Low-cost net return = 8% - 0.05% = 7.95%
- 02High-cost net return = 8% - 1.0% = 7.0%
- 03Low-cost: $100,000 x (1.0795)^30 = $978,000
- 04High-cost: $100,000 x (1.07)^30 = $761,000
- 05Difference = $217,000 lost to fees
Ready to run the numbers?
Open Expense Ratio Impact Calculator