Understanding the Expense Ratio and How It Affects Your Investments

Not wanting to pay for anything you don’t have to is also true with investing. You want to maximize the return on any investment you have. You might think that means finding the investment with the best returns.

An expense ratio can most easily be defined as the cost for a fund to operate vs. its assets’ total value. Determining it is relatively simple. Take the total of the operating expenses and divide that by the fund’s net asset value or NAV.

What is an Expense Ratio?

Knowing the fees associated with anything you’re paying for is essential, and investing is no different. When you invest in a fund with a higher expense ratio, the returns you earn are lowered.

Why Are Expense Ratios Important?

The primary way and likely the easiest can be done using your brokerage accounts. Another way to find the expense ratio is to find the fund’s prospectus. A prospectus is an overview of a fund’s investments.

How do I Know a Funds Expense Ratio?

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

Can You Avoid Expense Ratios?

Your investment strategy comes down to how active or passive you want to get with your investments. You can always take on a hybrid investment portfolio. As always, it’s about diversification.

Which Investment Strategy Should I Use?