Expense Ratio Fund Comparison
Example: Starting investment: 20000 $ · Annual contribution: 6000 $ · Expected gross annual return: 8 % · Fund A expense ratio: 0.03 % · Fund B expense ratio: 0.75 % · Investment horizon: 30 years
| Lifetime cost of the higher-fee fund | $119,359 |
| Fund A final balance | $875,553 |
| Fund B final balance | $756,194 |
| Fee gap equals this many years of contributions | 19.89 |
Worked example
Investing $20,000 plus $6,000 per year for 30 years at 8% gross: Fund A at 0.03% ER grows to $803,000; Fund B at 0.75% ER grows to $720,000. The fee gap costs $83,000 — equivalent to nearly 14 years of your $6,000 annual contributions. Choosing the lower-cost fund is one of the highest-return decisions available to investors.
Frequently asked questions
What is a good expense ratio for an index fund?
Most broad-market index funds from major providers now charge between 0.01% and 0.20%. The Fidelity ZERO funds charge 0%, Vanguard Total Market (VTSAX) charges 0.04%, and Schwab Total Market (SWTSX) charges 0.03%. If you are paying more than 0.20% for a passively managed index fund, compare alternatives — the cost difference compounds significantly over decades.
Do actively managed funds earn their higher fees?
On average, no. Research from S&P Dow Jones Indices (SPIVA reports) consistently shows that fewer than 15% of actively managed large-cap U.S. equity funds outperform their benchmark over 15 years, after fees. The minority that do outperform is difficult to identify in advance. The SEC requires all fund fees to be disclosed in the fund's prospectus and summary prospectus.
Does the fund's expense ratio show up on my statement?
No — expense ratios are deducted directly from the fund's net asset value each day, invisibly. You never see a fee line item, which is why investors often underestimate them. The only way to know a fund's expense ratio is to check the fund's prospectus, the fund company's website, or tools like FINRA's Fund Analyzer.