weighted expense ratio calculation?

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BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

weighted expense ratio calculation?

Post by BooneDocks11 » Sat Aug 01, 2020 3:55 pm

Is there a simple way to calculate weighted expense ratios of a portfolio?

For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:

25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)

TxInjun
Posts: 107
Joined: Fri May 29, 2015 12:05 pm

Re: weighted expense ratio calculation?

Post by TxInjun » Sat Aug 01, 2020 5:58 pm

BooneDocks11 wrote:
Sat Aug 01, 2020 3:55 pm
Is there a simple way to calculate weighted expense ratios of a portfolio?

For example, if one wanted to compare a target retirement fund with an expense ratio of 0.46% and a portfolio with:

25% fund A (0.06%)
51% fund B(0.02%)
15% fund C(0.03%)
9% fund D (0.04%)
25% can also be written as 0.25

You can calculate the weighted average as: 0.25*0.06 + 0.51*0.02 + 0.15*0.03 + 0.09*0.04

Since all the expense ratios are between 0.02% and 0.06%, the weighted average will also be between those numbers: so definitely much lower than your target date fund’s expense ratio of 0.46%

Best,

TxIn

Silk McCue
Posts: 4766
Joined: Thu Feb 25, 2016 7:11 pm

Re: weighted expense ratio calculation?

Post by Silk McCue » Sat Aug 01, 2020 6:02 pm

Sum the products of each fund percentage times their respective ER.

(.25 * .06) + (.51 * .02) + (.15 * .03) + (.09 * .04) = .0333%

Cheers

Topic Author
BooneDocks11
Posts: 20
Joined: Sun Jul 19, 2020 8:49 pm

Re: weighted expense ratio calculation?

Post by BooneDocks11 » Sat Aug 01, 2020 9:24 pm

Thanks!! :sharebeer

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