Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
The annual fee a fund charges, expressed as a percentage of your invested assets.
Definition: The annual fee a fund charges, expressed as a percentage of your invested assets.
The expense ratio is the yearly cost of owning a mutual fund or ETF, deducted automatically from returns. It sounds trivial but compounds powerfully: the difference between a 1.0% and a 0.03% fund can cost six figures over a career. This is why low-cost index funds dominate modern portfolios.
Annual cost = invested amount × expense ratio.
On $100,000 invested, a 0.03% expense ratio costs $30 per year, while a 1.0% ratio costs $1,000 per year. Over 30 years at 8% growth, that fee gap erodes well over $200,000 in ending balance.
Put this concept to work with our free Index Fund Investing Guide.
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