Funds
Expense Ratio
The annual fee a fund charges investors, expressed as a percentage of assets, covering management and operating costs.
Example
A $10,000 investment in a fund with a 0.03% expense ratio costs about $3 a year in fees; the same $10,000 in a fund charging 1.0% costs about $100 a year.
Common Misconception
A 1% annual fee sounds small, but compounded over 30 years it can consume a meaningful fraction of total returns — small percentage differences add up dramatically over long holding periods.
Why It Matters
Expense ratio is one of the few things about a fund's future performance you can actually know in advance, which is why cost-conscious investors weight it heavily when choosing between similar funds.