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So the ETF can charge 0.09% as fees, but is it taken away from your account, such as from your 401K account or personal investment account, or is it taken from the ETF Trust itself?

If it is taken from your account, will the 401K account firm or your broker firm ask you to send them money? What if you don't have a margin account, meaning that you can't really "owe" the firm any money?

If it is taken from the ETF Trust itself, then how does it affect the investors? If an investor buys 1,000 shares of SPY today, and it closely mirrors the S&P 500 index, and 30 years when the investor sells the 1,000 shares, which also closely mirrors the S&P 500 index at that time, how does this 0.09% affect the investor? I may think it affect the price of SPY near the time when the fees is taken away from the ETF, for a small dip in its price, but it probably is less than the spread of the bid and ask?

And... does that mean in 60 years, it will drop (1 - 0.09%)60 = meaning it has 94.7% of the real S&P 500 value? And in 1111 years, (1 - 0.09%)1111 = 37% of the S&P 500 value?

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  • I have always wondered why the fund can't be something like 100.01% leveraged, so that it makes up for the management fees with a slightly higher return. – Michael Apr 10 '20 at 3:53
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    yeah I wonder... maybe it is due to down years and what if it is continuous down years, God forbids – nonopolarity Apr 10 '20 at 4:08
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ETF management fees are paid out of the funds assets, usually out of a combination of capital and accrued dividends.

Using the comparison function on google Finance (click on the max tab above the chart) we see that the return (excluding dividends) on the S&P500 index for the period 5 February 1993 to 9 April 2020 is given as 521.44%. This compares to a return (excluding dividends) on the SPY ETF for the same period of 518.63%

This suggests that the majority of fees are paid out of accrued dividends and a small amount out of capital. Therefore, holders of SPY will receive slightly less dividend income than they would otherwise receive if there were no management fees and lose, in this case, a little (about 3%) of capital return.

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  • Would it be better to compare against S&P 500 TR Index to understand the compounding issue? – base64 Apr 10 '20 at 5:20
  • @base64 What would you compare it to? Is there a TR ETF? – user41790 Apr 10 '20 at 5:21
  • Against the SPY ETF with Reinvested Dividend, such as the Adjusted Close history of Yahoo Finance. – base64 Apr 10 '20 at 5:51
  • Is it true Yahoo Finance can compare, but cannot show the percentage increase because the numbers are too close together? That's true by the way: we actually get dividends from those 500 stocks too? So the dividends will just be deposited into our account? I am checking SWPPX too. Only 0.02% fees. If I compare SWPPX with .INX, SWPPX actual did better than .INX for 20 years! (75% vs 73%!) But if 5 years comparison then SPY is better than SWPPX – nonopolarity Apr 10 '20 at 13:10
  • Perhaps the tracking error at the Close of the measurement day is even a bigger uncertainty. – base64 Apr 10 '20 at 15:32

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