Expense Ratio

Expense ratio is the percentage of your investment that goes toward fund management fees each year. It's deducted automatically from returns, so you never see it—but it compounds over time.

How It Works:

• You invest $10,000 in a fund with 0.50% expense ratio
• The fund charges $50/year (deducted from returns)
• Over 30 years, that 0.50% fee costs you tens of thousands in lost compound growth

Expense Ratio Benchmarks:

• Index Funds: 0.03% - 0.20% (excellent)
• Actively Managed Mutual Funds: 0.50% - 1.50% (high)
• Specialty/Sector Funds: 0.75% - 2.00% (very high)

Impact Over Time: $100,000 invested for 30 years at 8% annual return:

• 0.05% expense ratio → $938,000 final value
• 0.50% expense ratio → $861,000 ($77,000 less!)
• 1.00% expense ratio → $761,000 ($177,000 less!)

Why Low Fees Matter: Studies show 80%+ of actively managed funds (high fees) underperform low-cost index funds over 15+ years. You're paying more for worse performance.

What's Included:

• Management fees
• Administrative costs
• Marketing (12b-1 fees)
• NOT trading commissions or tax costs

Target: Keep expense ratios under 0.20% for core holdings. Every 0.10% matters over decades.