Angie · learn
Expense ratio
The annual percentage a fund charges. It comes out whether the fund gains or loses, and over decades it compounds against you exactly as returns compound for you.
Updated 2026-09-05
The expense ratio is the annual percentage a fund deducts for running itself. It is taken from the fund's assets whether the fund gains or loses, and it is quoted before any trading costs the fund incurs internally.
The numbers look trivial and are not, because they compound in exactly the way returns do. On a 7 percent annual return over thirty years, the difference between 0.05 percent and 1.0 percent is roughly a quarter of the final balance. That is the single most reliable improvement available to a long-term investor, and it requires no skill at all.
See also
- Index fund — A fund that buys everything in an index rather than trying to pick winners. It is the default against which any active strategy has to justify itself.
- Mutual fund — A pooled fund that issues and redeems shares continuously at net asset value, priced once a day after the close rather than traded live.
- ETF — A basket of securities that trades on an exchange like a single stock. Most track an index, charge very little, and can be bought and sold all day.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
