UNDERSTANDING THE EXPENSE RATIO AND HOW IT AFFECTS YOUR INVESTMENTS

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When it comes to anything in life, you don’t want to pay more for anything if you don’t have to. 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. That’s where the expense ratio comes in.

What is an Expense Ratio?

An expense ratio can most easily be defined as the cost for a fund to operate vs. its assets’ total value. Think of any fund as a business.

Why Are Expense  Ratios Important?

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 by that much more.

Which Investment Strategy Should I Use?

You can always take on a hybrid investment portfolio. You can invest most of your money with index funds while investing in a few mutual funds to see higher gains. It’s about diversification and making sure your investments align with your personal goals.

A fund’s expense ratios help us understand the costs of investing in any particular mutual fund or ETF. Actively managed mutual funds need to cover their expenses. When deciding which type of investment you want to make, they should be taken into consideration by  any investor.

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