Think an ETF's Expense Ratio Doesn't Matter? Think Again!

🕒 Reading time: 4 minutes

Hi Wealth Builders! I'm Ben — Head Coach with Steve at Call to Leap.

Are you diligently saving and investing but still feel like your portfolio isn't growing as fast as it should? The culprit might be hiding in plain sight: expense ratios.

These seemingly tiny fees can have a massive impact on your long-term returns. Let’s break down why every investor — especially beginners — needs to understand expense ratios.

📊 What Exactly is an Expense Ratio?

In simple terms, an expense ratio is the annual fee a fund charges to cover its operating costs. Think of it as the cost of doing business for the fund manager. It’s shown as a percentage of your investment.

For example, a 0.5% expense ratio means you’ll pay $5 a year for every $1,000 invested. Small? Yes. Insignificant? Not at all — these costs snowball over decades.

🔄 The Power of Small Numbers: Compounding vs. Expense Ratios

Here’s where high expense ratios quietly destroy wealth: they weaken the power of compounding.

Quick example:

• Fund A: $10,000 invested with a 0.03% expense ratio.

• Fund B: $10,000 invested with a 1% expense ratio.

At first glance: $3 vs. $100 in yearly fees — not a big deal, right? But let that portfolio grow to $1 million. Now, you’re paying $300 per year for Fund A… or $10,000 per year for Fund B! That’s money that’s not earning you more money.

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💡 The Sweet Spot: Low-Cost ETFs and Index Funds

Good news: it’s easier than ever to invest wisely with low fees. Many top ETFs and index funds have expense ratios between 0.03% and 0.25%. Some fan favorites:

✅ VOO (Vanguard S&P 500 ETF): Tracks the S&P 500
✅ SPY (SPDR S&P 500 ETF Trust): Another popular S&P 500 tracker but costs more
✅ SPLG (SPDR Portfolio S&P 500 ETF): The lowest-cost S&P option in the bunch

✅ QQQ (Invesco QQQ Trust): Tracks the Nasdaq-100 (around 0.09%)
✅ QQQM (Invesco NASDAQ 100 ETF): Also tracks the Nasdaq-100 but costs less

These are reliable ways to keep your fees low while staying diversified.

🧐 Due Diligence: Always Double-Check

Before you buy any fund, check its expense ratio. It’s usually front and center on the fund’s website or fact sheet. A simple Google web search is all you need.

Don’t be fooled by flashy marketing or big promises — a lower expense ratio can make a bigger difference than last year’s performance.

Final Word:
Cutting down your expense ratios is one of the simplest ways to keep more of your money working for you. Pick smart, low-cost ETFs and index funds — and let compounding do the heavy lifting. Don’t let high fees quietly drain your future wealth.

— Ben, for the Call to Leap Team

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Disclaimer:

The following article is strictly the opinion of the author and is not to be considered financial/investment advice. CTL Community LLC and the author of this article do not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article. Call to Leap may earn affiliate commissions from the links mentioned. Call to Leap is part of an affiliate network and receives compensation for sending traffic to partner sites such as ImpactRadius, CardRatings, MyBankTracker, and more.