What is an expense ratio?

An expense ratio measures how much you’ll pay over the course of a year to own a fund. A high expense ratio can significantly impact your returns, and it pays for things like the management of the fund, marketing, advertising and any other costs associated with running the fund. Both mutual funds and ETFs charge an expense ratio.

What is the expense ratio of a mutual fund?

The expense ratio would be equivalent to $6.30 per $1,000 invested. Assuming your fund earns an 8% average annual rate of return for 30 years: Before fees, your investment would be worth $744,137.86. After accounting for fees, it would be worth $659,029.93. The total expense ratio cost would be $85,107.93.

What is a good expense ratio?

Investors might see anything in the range of 0.10% to 0.75%. Generally, a good expense ratio will be less than 0.20% in most situations. It's a good idea to dive into the details and understand how the expenses are calculated and what they're being used for the fund you're interested in. All things are not created equal in expense ratios.