ETF v praxi
Annual ETF Cost Review: Calculate What Your Portfolio Really Cost You This Year
Key takeaways
- TER (Total Expense Ratio) is only the visible part of costs — total costs are always higher.
- The bid-ask spread on ETF trades can add another 0.1–0.5% per year to an active portfolio's costs.
- Platform or broker fees are critical for small portfolios — they can proportionally exceed the TER itself.
- An annual cost review helps identify where you are overspending and lets you optimise your portfolio structure.
- Tax perspective: recalculating total costs including tax obligations gives the full picture of performance.
December is a natural time to tidy up your portfolio — and one of the most worthwhile exercises is calculating what investing actually cost you over the past year. The result is often surprising, because the TER shown on a fund's website is only the beginning of the story.
What Is TER and Why It Is Not Enough
TER (Total Expense Ratio) is the annual fee a fund automatically deducts from asset value. For the cheapest global ETFs it ranges between 0.03% and 0.20%. At first glance, trivial. The problem is that TER does not include all the costs an investor actually bears.
True costs also include:
- Bid-ask spread — the difference between the buy and sell price of an ETF on each transaction, typically 0.01–0.30%.
- Broker or platform fees — a fixed or percentage-based fee per purchase, or an annual management fee.
- Withholding tax — dividend tax withheld at source, reducing the effective return of distributing funds.
- Income tax — if you do not meet the three-year holding test in the Czech Republic, gains on sale are taxed as income.
How to Calculate Annual Portfolio Costs
The method is straightforward. For each fund in your portfolio, add: TER × average position value + broker fees paid + estimated spread × position turnover. Express the result as a percentage of average portfolio value. This figure is your true cost ratio.
For a long-term passive portfolio with zero turnover, true costs should approximate the TER. If you trade actively or hold a small portfolio with a relatively expensive broker, true costs can easily be three to five times higher.
Where to Find Savings
The most common sources of unnecessary costs in the Czech context are overly expensive platforms with management fees, excessively frequent rebalancing that generates spreads and transaction costs, and distributing funds where withholding tax reduces returns before reinvestment occurs. A comparison of accumulating and distributing funds can be found in the article on accumulating vs. distributing ETFs.
December as a Starting Point for Next Year
The findings of the annual review are not just a backward look — they are input data for next year. You know where you are overpaying. You know where simplification makes sense. And you know by how many percentage points per year costs are reducing your actual return. A full overview of ETF funds can be found in the ETF section.
FAQ
What is TER and where can I find it?
TER (Total Expense Ratio) is the annual fund fee automatically deducted from asset value. You can find it in the fund's KIID document or on the ETF provider's website. It is expressed as an annual percentage.
How much impact do costs have on long-term returns?
Costs are the one uncertainty with a certain effect — an extra 1% per year corresponds to roughly 26% less capital over 30 years, thanks to compounding. Even small differences in TER therefore have a large long-term impact.
Do I need to account for taxes in the cost review?
For a complete picture, yes. Particularly for distributing funds, where withholding tax and potential Czech income tax reduce the effective net return. For passive accumulating portfolios with a long horizon, the tax burden is lower.
How do I know if my broker is too expensive?
Compare total annual broker costs (management fee, transaction fees) against the portfolio value. If they exceed 0.2–0.3%, it is worth comparing alternatives — especially if you invest smaller amounts regularly.