What Is an Expense Ratio?
An expense ratio is the yearly fee a fund charges, shown as a percentage of your investment. It is taken out quietly from the fund's value.
How it works
A fund with a 0.10% expense ratio costs $10 a year for every $10,000 invested. You never get a bill; the fee is taken from the fund's assets, so your returns are a little lower.
What is a good expense ratio?
Many broad index funds and ETFs charge under 0.10%. Actively managed funds often charge 0.5% to 1% or more. Lower is better, unless you are sure the higher fee buys something worth it.
How fees add up
$100,000 growing 7% a year for 30 years becomes about $761,000. With a 1% yearly fee, it becomes about $574,000. That one percent costs nearly $190,000. Fees compound against you.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
ETFOne fund that holds many stocks at once.
Index fundA fund that copies a market index.
Mutual fundA pool of money that a manager invests for many people.
Passive vs active investingCopying the market versus trying to beat it.
Compound interestGrowth that earns more growth.
Robo-advisorAn app that invests for you automatically.