An expense ratio is charged every year as a percentage of assets, which is why even a small difference compounds into a large gap in ending balance over long horizons.
How it works
Two identical investments with the same gross return but different expense ratios are compounded over the same number of years — the same mechanics as this site’s compound interest calculator, applied specifically to isolate what the fee difference alone costs.
What this does not include
This assumes both funds deliver identical gross returns before fees — in reality a higher-fee active fund may (or may not) deliver a different gross return than a lower-fee index fund, which this calculator doesn’t attempt to model or predict.
How to use this calculator
- Enter a starting balance, gross annual return, and years invested.
- Enter the two expense ratios being compared.
Frequently asked questions
Why does such a small percentage difference matter so much?
Because it compounds every single year over a long horizon — a 0.9 percentage point difference, sustained for 30 years, works out to a large share of the ending balance.
Does this account for fund performance differences?
No — this isolates the fee difference alone, holding gross return identical between the two, which is the only way to cleanly show what fees specifically cost.
Are index funds always the lower-fee option?
Typically, yes, though expense ratios vary within both active and passive funds — comparing the actual published expense ratio of specific funds is more reliable than assuming by category.
