ETF expense ratio: what it is and what it costs you

An ETF expense ratio is the yearly fee a fund charges to run itself, shown as a percent of your money in the fund. An expense ratio of 0.20% costs about $20 a year for every $10,000 you hold. You never pay a bill. The fund takes the fee out of its own assets, which trims your return a little.

Key points#

• The expense ratio is a fund’s yearly operating costs divided by its average assets.
• The fund pays it from its assets, so it shows up as a slightly lower share value, not a charge on your statement.
• Small gaps add up. In our example, a 1% fee costs about $18,700 over 30 years on a one-time $10,000.
• Broad index ETFs often charge very little. Narrow, active and leveraged ETFs usually charge more.
• The expense ratio is not your only cost. Spreads, commissions and the fund’s own trading costs come on top.

What is an ETF expense ratio?#

The expense ratio is the fund’s total yearly operating cost as a share of its assets. The SEC’s fee bulletin calls it the “Total Annual Fund Operating Expenses,” expressed as a percent of the fund’s average net assets (Investor.gov).

It usually bundles three parts:

If you are new to funds, our guide to what an ETF is covers the basics first.

How is the expense ratio charged?#

The fund pays its costs out of the money it holds. That lowers its net asset value, the value of each share. You pay indirectly, through a slightly smaller return (Investor.gov).

Funds usually set aside a tiny slice of the yearly fee each business day, when they work out the day’s share value. That is why you never see a single charge. A fund with a 0.50% expense ratio that would have earned 7% in a year leaves you with about 6.5%.

How much does an expense ratio cost over time?#

A few tenths of a percent sounds like nothing. Over decades, it compounds into real money.

Say you invest $10,000 once and the fund earns 7% a year before fees. This is a hypothetical example, not a forecast.

Each year the fee takes some dollars. It also takes the growth those dollars would have earned later. That is why the gap grows so much faster in the last decade than in the first.

The SEC also says a high-cost fund must do better than a low-cost one to give you the same return. FINRA’s free Fund Analyzer lets you run this math on real funds. It covers more than 18,000 mutual funds, ETFs and exchange-traded notes, according to Investor.gov.

What is a good expense ratio for an ETF?#

A lower fee is better when two funds do the same job. What counts as low depends on the kind of fund.

Here are three real fund fees, as of October 16, 2026:

Gross is the full cost. Net is what you pay after any fee waiver the fund company offers. Waivers can end, so check the date.

Leveraged ETFs cost more because they run swaps and futures every day. Broad index funds cost less because they follow a list and trade rarely.

Common mistakes#

• Picking a fund on fee alone. A cheap fund that holds the wrong things is still the wrong fund.
• Thinking a “zero-expense” fund is free. The SEC warns that some costs sit outside the expense ratio, like the fund’s own trading costs.
• Ignoring the spread. In a thinly traded ETF, the bid-ask spread can cost more than a year of fees.
• Comparing gross to net. Compare the same kind of number for both funds.
• Paying twice. A fund that holds other funds can stack two layers of fees.

Try it on Tactfolio#

Tactfolio backtests use each fund’s real daily prices. Since a fund’s price is already net of its expense ratio, the fee is built into every result you see. You can test the same idea with a low-cost fund and a pricier one in the strategy builder. Then you can see the gap on the same dates. The 60/40 portfolio is a simple mix of two ETFs to start from.

Common questions#

Is the expense ratio charged every year?#

Yes. It is a yearly rate, but the fund takes it from its assets a little at a time. You see it as a slightly lower share value, not as a separate bill.

Is a 0.5% expense ratio high for an ETF?#

For a broad index ETF, 0.5% is high, since many charge under 0.1%. For an actively run, niche or leveraged fund, 0.5% can be on the low side. Compare funds that do the same job.

Do ETFs or mutual funds have lower expense ratios?#

ETFs have tended to cost less to run than similar mutual funds, the SEC says. But broad index mutual funds can be very cheap too. Our ETF vs index fund and ETF vs mutual fund guides compare them.

Where do I find an ETF’s expense ratio?#

It is in the fee table near the front of the fund’s prospectus. The fund company’s web page for the ETF also lists it, often as both gross and net figures.

Sources

• Mutual Fund and ETF Fees and Expenses: Investor Bulletin, Investor.gov (SEC), accessed October 16, 2026
• Exchange-Traded Funds (ETFs), Investor.gov (SEC), accessed October 16, 2026
• Updated Investor Bulletin: Exchange-Traded Funds (ETFs), Investor.gov (SEC), accessed October 16, 2026
• Fund Analyzer, FINRA, accessed October 16, 2026
• Fund Analyzer, Investor.gov (SEC), accessed October 16, 2026
• iShares Core S&P 500 ETF, BlackRock iShares, accessed October 16, 2026
• Ultra S&P500 (SSO), ProShares, accessed October 16, 2026
• UltraPro S&P500 (UPRO), ProShares, accessed October 16, 2026

More in Learn

• What is the S&P 500 index? How it works and what's in it
• S&P 500 index funds: how to pick one and what they cost
• ETF vs mutual fund: what is the difference?
• IRA vs 401(k): differences, 2026 limits and which to use