What does an ETF really cost you?

TL;DR: An ETF charges you an annual expense ratio (the TER) for managing a basket of assets — a basket you could, in principle, assemble and own directly yourself. That TER looks small, often around 0.15%–0.35% per year, but on €100,000 over 20 years a 0.20% TER illustratively costs you about €10,000 at a 5% return — and roughly €14,000 at a 7% long-run historical average.

ETFs are popular because they're cheap and simple — and compared with active management, they are. But "cheap" isn't "free". You pay an annual fee to the provider for what is, at its core, a basket of assets with fixed weights. Below we make concrete what that fee means over a long horizon — not a forecast, but an illustration of how costs add up.

What is an expense ratio (TER)?

The expense ratio, or TER (Total Expense Ratio), is the percentage an ETF deducts each year to run the fund. For broad, passive ETFs it typically sits between 0.15% and 0.35% per year. You don't pay it separately: it's settled inside the ETF's price, so you never see it land on a statement. That makes it easy to underestimate.

How much does a TER cost over 20 years?

Here is the worked example, with every assumption stated so you can check it yourself:

• Deposit: €100,000, one-off
• Horizon: 20 years
• ETF's TER: 0.20% per year (midpoint; band 0.15%–0.35%)
• Comparison: the same basket, owned directly without an ongoing fund fee

We run it at two return assumptions — both purely illustrative, not an expectation or a promise. The 5% is a cautious assumption; the ~7% is the long-run historical average of broad equity markets, measured over roughly a century. Note: a historical average is not a forecast — returns vary year to year and can also be negative.

5% per year± €255,000± €265,000± €10,0007% per year (historical average)± €373,000± €387,000± €14,000

Two things stand out. First, the higher the return, the larger the cost difference in euros — because the TER is charged on a bigger base. At 7%, that same 0.20% TER costs you roughly €14,000 instead of €10,000. Second, the outcome depends on the size of the TER: across the 0.15%–0.35% band, the drag at 5% sits between roughly €7,500 and €17,000, and at 7% between roughly €10,500 and €24,500. Small per year, but compounding quietly stacks it up.

Why do you pay that TER in the first place?

For the convenience. The provider buys and manages the underlying assets, rebalances the index and handles the admin. For many people that percentage is worth it. But it's worth knowing what you're buying: not magic, but the management of a basket that you could — if you wanted — assemble and own directly yourself. Do that and the ongoing fund fee disappears, and you hold the underlying assets yourself.

Owning the basket instead of the ETF

Build the basket yourself and you decide the composition and the target weights, owning the underlying assets directly through your own broker account — with no annual fund fee on top. You rebalance whenever you choose, back to your target weights. That's exactly what we're building David for: you assemble your own fund, set the target weights and rebalance yourself, whenever it suits you.

This article gives no investment advice and doesn't claim that building your own is better than an ETF. For many people an ETF is a perfectly sound, cost-efficient choice. It only shows what the TER costs over time, so you can weigh the choice yourself with the figures in front of you.

Frequently asked questions

What is an ETF's expense ratio?
The expense ratio (TER) is the percentage an ETF deducts each year for management. For broad, passive ETFs it typically sits between 0.15% and 0.35% per year, settled inside the price.

How much does a 0.20% TER cost over 20 years?
In an illustrative worked example on €100,000 over 20 years, a 0.20% TER costs you about €10,000 at a 5% assumed gross return, and about €14,000 at 7% (the long-run historical average of broad equity markets). The higher the return, the larger the cost difference; a historical average is not a forecast.

Can I own the underlying assets of an ETF myself?
Often, yes: an ETF is at its core a basket of assets with fixed weights. You can assemble a similar basket yourself through your own broker and own the assets directly, with no ongoing fund fee.

Does David Owl give investment advice?
No. David Owl (C capital bv, Dutch CoC 82436665) is software, not a wealth manager, and gives no investment advice. You remain responsible for your own investment decisions.

Want to assemble your own basket?

David is an iOS app that lets you assemble your own fund from your broker account — you own the underlying assets yourself, no ongoing fund fee, and you rebalance whenever you choose. See how the Builder works →

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David Owl (C capital bv, Dutch CoC 82436665) is software, not a wealth manager, and offers no investment advice. The worked examples are illustrative and are not a forecast or guarantee of returns. The cost percentages cited are market indications; the actual TER varies per ETF.