Calculating the ETF cost?
Let's say I invest 1000 USD in an ETF.
Over the 10 year period, the shares had 5% annualized gain, meaning the value of my investment would be 1630 USD. However, I didn't take into account ETF fees.
What would be the value of my investment in the following cases:
ETF cost is 0.05 % (un-hedged)?
ETF cost is 0.10 % (hedged)?
I am trying to see how much would hedging cost me over this period.
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Using this Calculator and setting up 3 cases:
1. annualized interest rate = 5%
2. annualizud interest rate = 5% - 0.05%
3. annualizud interest rate = 5% - 0.10%
The results are (balance):
1. ,628.89
2. ,621.15
3. ,613.45
Earnings $:
2. My gain is 1 and ETF earned .
3. My gain is 3 and ETF earned .
Earnings %:
2. Me: 98.77% ETF: 1.23%
3. Me: 97.54% ETF: 2.46%
In this particular case:
ETF 0.05% cost translates to 1.23% of earnings.
ETF 0.10% cost translates to 2.45% of earnings.
It is important to say that the percentage of earning ETF takes:
doesn't depend on the amount invested
increases with the investment time
decreases with the gain your investment had
Using a tool like www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php you just compare the values of the expected annualized rate minus the relevant basis point cost in each case and see what the difference is between the two.
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