Expense Ratios

How the yearly fee on a fund works, why a fraction of a percent matters so much over decades, and the other hidden costs of owning and trading funds.

The fee you never see charged

Every fund has running costs: managers, record keeping, legal work and index licensing. Those costs are paid from the fund’s assets through the expense ratio, a yearly fee expressed as a percentage of your investment. An expense ratio of 0.10% costs $1 a year for every $1,000 invested.

You never receive a bill. The fee is deducted a little at a time from the fund’s value, so it shows up as slightly lower returns. That invisibility is exactly why many investors ignore it.

Unlock all of Investing School

The rest of this lesson, its chart examples and quiz are part of Investing School. Start free with Stock Market Fundamentals and the first lesson in every category.