Expense Ratio — The Hidden Fee Eating Your Returns
The expense ratio is an annual fee charged by mutual funds, expressed as a percentage of your investment. A 1% expense ratio means you pay $100/year for every $10,000 invested.
How Expense Ratios Affect Returns
| Expense Ratio | $100K After 30 Years (10% Return) | Lost to Fees |
|---|---|---|
| 0.10% | $1,694,772 | $50,182 |
| 0.50% | $1,497,120 | $247,834 |
| 1.00% | $1,299,493 | $445,461 |
| 1.50% | $1,126,899 | $618,055 |
A 1.5% expense ratio costs you over $618,000 on a $100K investment over 30 years! Always choose funds with expense ratios below 0.50%.