September 26, 2014
What is an expense ratio when it comes to investing? Why should you care? What is good and what is bad?
What is an expense ratio when it comes to investing? Why should you care? What is good and what is bad?
The expense ratio is what your investments will cost you on a yearly basis, such as .10% a year or 1% a year, you can keep your expense ratio very low with Vanguard. You want the lowest expense ratio because you want to keep as much money as you can. There is no reason to give away 1% of your money a year when it could cost you only .05% if you know what you are doing. A good expense ratio is under .2% while a bad one is generally anything over 1%.
Well said, Garrett. Let’s review.
The expense ratio is the cost you pay to invest in a mutual fund. It goes to the mutual fund, not the salespeople. You will never get a bill for this and never see the money come out of the account, but it does. Every mutual fund charges an expense ratio and just as Garrett stated, you want to keep yours low as best you can.
You can do this by focusing on index funds inside your retirement plans at work and with a Roth IRA or other taxable index funds at a place like Vanguard. Get your portfolio cost below .2% and keep working to get it to .1%. Your return on investment will go up dramatically over time with this approach as you end up keeping more of YOUR return. Awake!