Understanding Expense Ratio:  How DOES 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. 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.

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. 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. When you invest in a fund with a higher expense ratio, the returns you earn are lowered.

Why Are Expense Ratios Important?

A way to find the expense ratio is to find the fund’s prospectus, it's the 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. As always, it’s about diversification.

Which Investment Strategy Should I Use?