How the Expense Ratio (TER) Affects Returns
A 0.97% difference per year? Seems trivial, right? Run the 30-year compounding math and you'll think differently.
What Is the Expense Ratio (TER)?
TER (Total Expense Ratio) is the annual cost ratio of holding a fund or ETF. You don't pay it separately; it is automatically deducted from assets daily, so it is easy to miss.
Examples: - Vanguard S&P 500 ETF (VOO): TER 0.03%/year - A typical domestic equity active fund: TER 1.5-2%/year
Beyond the management fee, sales fees, custody fees, and others are summed to form the TER. Check the "total fee" or "synthetic TER" stated in the ETF's product prospectus.
A 30-Year Compounding Simulation
Assumptions: initial about $7,400, market return 8% per year, 30-year investment
TER 0.03% (index ETF): effective return 7.97% -> about $7,400 -> about $76,200 TER 0.5% (middle): effective return 7.5% -> about $7,400 -> about $64,900 TER 1.5% (active average): effective return 6.5% -> about $7,400 -> about $49,000
With a 1.47% difference in TER, the final assets differ by about $27,200 (about 36%) after 30 years. It is a structure in which cost eats into the returns the market hands you.
These figures exclude taxes. Actual after-tax results vary depending on how taxes are handled.
How to Find Low-TER ETFs
Examples of expense ratios for major ETFs investable in Korea (as of 2024, subject to change):
Tracking the U.S. S&P 500: - TIGER US S&P500: about 0.07% - KODEX US S&P500: about 0.09%
Domestic stocks: - KODEX 200: about 0.15% - TIGER 200: about 0.05%
Among ETFs tracking the same index, the lower the TER, the more advantageous. Just also check the liquidity (average daily volume) and the fund size.
よくある質問
Q. Does a low TER always mean a good ETF?
TER alone is not enough to judge ETF quality. Tracking error (the difference between actual performance and the index), liquidity (volume), fund size, and the index-replication method (physical vs. synthetic replication) also matter. An ETF with a low TER but large tracking error may have higher actual costs.
Q. Are overseas ETFs (VOO, SPY, etc.) better than domestic ETFs?
Overseas-listed ETFs may have a lower TER, but a capital gains tax on overseas stocks (22% after a 2.5 million KRW deduction) applies. Domestic-listed ETFs may have a different tax treatment. You must compare cost and tax comprehensively. Since it varies by individual situation, we recommend consulting a tax professional.
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