The Arithmetic of Investment Expenses

Posted: 31 Mar 2013

See all articles by William F. Sharpe

William F. Sharpe

Stanford University - Graduate School of Business

Date Written: March 29, 2013


Recent regulatory changes have brought a renewed focus on the impact of investment expenses on investors’ financial well-being. The author offers methods for calculating relative terminal wealth levels for those investing in funds with different expense ratios. Under plausible conditions, a person saving for retirement who chooses low-cost investments could have a standard of living throughout retirement more than 20% higher than that of a comparable investor in high-cost investments.

Keywords: Alternative Investments, Investment Companies, Fund Management Fees, Performance Measurement and Evaluation, Risk-Adjusted Measures, Effect of Expenses, Portfolio Management, Performance Measurement, Attribution, and Appraisal, Mutual Funds, Pooled Funds, Exchange-Traded Funds (ETFs)

Suggested Citation

Sharpe, William F., The Arithmetic of Investment Expenses (March 29, 2013). Financial Analysts Journal, Vol. 69, No. 2, 2013, Available at SSRN:

William F. Sharpe (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-4876 (Phone)
650-725-7979 (Fax)


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