What is an ETF expense ratio?

An expense ratio is the annual fee an ETF charges to cover operating costs, expressed as a percentage of assets. It is deducted daily from the fund's NAV, so you never write a check — the fund just grows a little slower.

How much does a 0.5% higher expense ratio cost over 30 years?

On a $100,000 investment at 7% gross return, a 0.5% higher expense ratio costs roughly $80,000–$100,000 over 30 years due to compounding. The exact amount depends on the gross return assumed.

What is a good expense ratio for an ETF?

Broad index ETFs like VOO, IVV, and VTI charge 0.03–0.04%. Actively managed ETFs can range from 0.50% to over 1%. For long-term passive investing, expense ratios below 0.10% are generally considered low-cost.

📊ETF Expense Ratio Impact Calculator

Compare two ETFs by expense ratio to see how the difference grows into thousands of dollars over 10, 20, and 30 years.

Initial Investment ($)

Gross Annual Return (%)

ETF A Expense Ratio (%)

ETF B Expense Ratio (%)

Why Expense Ratios Matter for Long-Term Returns

An ETF's expense ratio is deducted from returns every year. Because of compound growth, even a small annual drag multiplies significantly over decades. A $100,000 investment earning 7% gross with a 0.50% expense ratio will be worth roughly $80,000 less after 30 years compared to one charging just 0.03%.

Common S&P 500 ETF Expense Ratios

ETF	Expense Ratio	Notes
VOO (Vanguard)	0.03%	S&P 500 index
IVV (iShares)	0.03%	S&P 500 index
SPY (SPDR)	0.0945%	Oldest S&P 500 ETF
Actively managed	0.50–1.50%	Varies widely

For index-based long-term investing, choosing the lowest expense ratio among equivalent ETFs is one of the easiest ways to improve returns. Beyond fees, also consider tracking error, trading volume, and tax efficiency when comparing ETFs.

Frequently Asked Questions

Is expense ratio the only fee I should watch?

No. Also consider bid-ask spread (affects each trade), brokerage commissions (most are now $0), and tax drag. For tax-efficient investing, ETFs generally have lower capital gains distributions than mutual funds.

Can a higher-cost ETF still outperform?

Possible in short periods, but consistently beating a low-cost index fund net of fees is very rare over 10+ years. Most active strategies underperform their benchmark after fees over the long run.

Why Expense Ratios Matter for Long-Term Returns

Common S&P 500 ETF Expense Ratios

Frequently Asked Questions

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