Question 1

What is an expense ratio?

Accepted Answer

An expense ratio is the annual fee charged by a fund as a percentage of assets under management. A 1% expense ratio means you pay $10 per year for every $1,000 invested. These fees are deducted from your returns automatically.

Question 2

What is a good expense ratio?

Accepted Answer

Index funds and ETFs often have expense ratios of 0.03% to 0.20%. Actively managed funds typically charge 0.50% to 1.50% or more. Research consistently shows that lower-fee funds tend to outperform higher-fee funds over long periods.

Question 3

How much do fees really matter?

Accepted Answer

Over long periods, even a 0.50% difference in fees can cost hundreds of thousands of dollars. This is because fees compound: you lose not just the fee amount, but also the returns those dollars would have earned over decades.

Mutual Fund Expense Calculator

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