December 10, 2014
What does the expense ratio signify when considering a mutual fund? Why does this matter? What kind of number are you looking for?
What does the expense ratio signify when considering a mutual fund? Why does this matter? What kind of number are you looking for?
An expense ratio is what it cost an investment company to operate a mutual fund. This matters because the more the cost ratio is, the less money you will make because the company will have more fees to pay for its higher costs. The smaller the expense ratio the better.
The expense ratio tells you what you will pay at a yearly rate for this fund. If its .1% or 10 basis points then you will pay .1% of the funds that you hold. If you have $10,000 in your account and you pay .1% a year it will cost you $10 a year to hold that account. This is important to know because it will deturnman what your return is after costs that you get. If you pay 1.1% then you are making 1% less then someone paying .1% a year. It is best to keep the number as low as you can, generally under .33% for your account in whole. You can even get this rate as low as .05% at Vanguard.
Nice job gentlemen. Garrett nailed this one! Read his comments carefully and follow them!