How a 0.20% Difference in Expense Ratio Compounds Over 20 Years
Small percentage differences in fund fees look trivial year to year — the long-term math tells a different story.
Elena Marsh
Head of Research
Expense ratios are quoted as small annual percentages, which makes them easy to underweight when comparing similar index funds. Compounded over decades, the difference is far from trivial.
On a $50,000 initial investment growing at an assumed 7% annual return before fees, a fund charging 0.03% versus one charging 0.23% can differ by tens of thousands of dollars over a 20-year holding period, purely from the fee drag.
This matters most for core, long-term holdings where the fee is paid every year regardless of performance. For satellite or thematic positions held for shorter periods, the same fee difference matters proportionally less.
When two funds track the same or very similar indexes, expense ratio is often the single most decision-relevant variable, since tracking difference and fund flows tend to follow from cost over time.
This article is independent commentary for general information purposes only and does not constitute personalized investment advice. Veridian may have an affiliate relationship with some platforms mentioned elsewhere on this site — see our affiliate disclosure.