Why fees compound
A small annual expense ratio reduces the amount left to compound each year. Over long periods, the ending value difference can be much larger than one year of fees.
Example
With a $50,000 starting balance, a 6% gross annual return and a 0.25% expense ratio for 20 years, the no-fee value is about $160,357. Reducing the annual return to 5.75% produces about $152,700, so the simplified fee drag is roughly $7,600.
Common mistakes
An expense ratio is an annual percentage, not a one-time fee. Also check whether a quoted fund return is already shown net of expenses before subtracting the fee again.
Limitations
This simplified model excludes taxes, trading costs, tracking error, contributions, changing returns and fund-specific fee waivers. It is a fee-sensitivity estimate, not investment advice.
Last reviewed: 2026-05-17