Definition
The annual fee expressed as a percentage that mutual funds or ETFs charge to cover operating costs. Lower ratios mean more of your money is working for you.
What to consider
- Compare expense ratios when choosing mutual funds or ETFs.
- Lower fees can significantly boost your long-term returns.
- Review these costs as part of your overall investment strategy.
Real world scenarios
- Al checks the expense ratio on a mutual fund before investing, favoring a lower ratio that won’t eat into returns.
- Simone realizes her old fund charges a high expense ratio, prompting her to switch to a cheaper index fund.
- Ben calculates how expense ratios affect his net earnings, factoring them into his overall portfolio strategy.
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