Understanding The Expense Ratio And How It Affects Your Investments


You want to maximize the return on any investment you have. You might think that means finding the investment with the best returns.

High returns are certainly an eye-catching statistic. They are a significant factor when deciding where to invest your money. 

However, there is a bit more to it. The flip side of it is how much its costs you to invest in any particular fund. That’s where the expense ratio comes in.

Determining a fund expense ratio is relatively simple. Take the total of the operating expenses and divide that by the fund’s net asset  value or NAV.

Would you rather invest in a fund that charges you 1% or 1.25%? Simple math says if the returns are about equal, you would want to pay lower fees.

Any fund you invest in will have operating expenses, so no, if you are a mutual fund investor, you can’t  avoid them. 

Over the long term, a reasonable expense ratio can drastically change your  capital gains.