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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:

  1. ETF cost is 0.05 % (un-hedged)?
  2. ETF cost is 0.10 % (hedged)?

I am trying to see how much would hedging cost me over this period.

2 Answers 2

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Using a tool like https://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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  • Thanks. Could you recheck the calculation in my answer: does it make sense?
    – Danijel
    Commented Jan 11, 2019 at 12:07
  • Yes looks correct.
    – Philip
    Commented Jan 11, 2019 at 12:12
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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. $1,628.89
2. $1,621.15
3. $1,613.45

Earnings $:

2. My gain is $621 and ETF earned $7. 
3. My gain is $613 and ETF earned $15.

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

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