What an expense ratio is
The expense ratio is the yearly fee an ETF charges, shown as a percent of your investment. You never get a bill. It comes out of the fund's assets a little at a time, which is exactly why it is easy to ignore. A 0.50% fee on $100,000 is $500 a year, every year, and it grows as your balance grows.
Why small differences add up
Fees compound against you the same way returns compound for you. Every dollar paid in fees is a dollar that is no longer invested and growing. Over 25 or 30 years, the gap between a 0.03% index fund like VOO and a fund charging 0.60% or more can be tens of thousands of dollars on an ordinary portfolio.
When a higher fee can make sense
Some strategies cost more to run. Option-income funds like JEPI, QYLD or SPYI and actively managed funds charge more than plain index funds. That can be worth it if the strategy gives you something you want, like higher monthly income. The point of this calculator is to make sure you know the price you are paying.
Want a list of the cheapest funds? See our low expense ratio ETFs screen.
Frequently asked questions
How is an ETF expense ratio charged?
It is deducted from the fund's assets daily, a tiny fraction at a time, and reflected in the share price. You do not pay it separately.
How much is a 0.5% expense ratio on $10,000?
About $50 a year. As your balance grows, the dollar amount grows too, and over decades the lost compounding adds up to much more.
What is a good expense ratio?
Broad market index ETFs often charge 0.03% to 0.10%. Many dividend ETFs charge 0.06% to 0.40%. Option-income and actively managed funds often charge 0.35% to 1% or more.
Does a higher expense ratio mean a worse ETF?
Not always. It means the strategy costs more. Compare what you get for the fee, like income, strategy and total return, before deciding.