ETF Fees (TER): Impact on Your 20-Year Returns

Introduction

ETFs (Exchange Traded Funds) have become essential investment vehicles for individuals and professionals thanks to their simplicity, diversification, and low costs. Among these costs, the TER (Total Expense Ratio) or total fees is a key element often underestimated by investors. Yet, over a long period, such as 20 years, these fees can significantly impact the final return of your portfolio. In this article, we will break down what the TER is, how it influences your long-term gains, and why it is essential to take it into account in your investment strategy.

What is the TER and how is it calculated?

The TER, acronym for Total Expense Ratio, corresponds to the annual fees that the ETF manager charges to cover management, administration, marketing, and other expenses related to the fund. Expressed as a percentage of assets under management, the TER is automatically deducted from the ETF’s net asset value, which means you do not pay it directly, but it affects the net performance of your investment.

For example, a TER of 0.25% means that 0.25% of the total value of your portfolio is taken each year to cover these fees. If you have €10,000 invested, this represents an annual cost of €25.

The impact of fees on long-term returns

At first glance, a TER of 0.25% may seem insignificant or even negligible. However, thanks to the cumulative effect of compound interest, these fees can seriously erode your capital over 20 years. Let’s imagine two identical scenarios except for the TER:

• An ETF with a TER of 0.10%
• An ETF with a TER of 1.00%

Assuming an initial investment of €10,000 with an average gross annual return of 7%. After 20 years, the first ETF (0.10% fees) will generate in