Financial Term Explainer

An expense ratio is the annual fee a mutual fund or ETF charges you, expressed as a percentage of your investment — it's automatically deducted, so you never see a bill. Example: a 1% expense ratio on a $50,000 account costs you $500/year. Why it matters: over 30 years, a 1% vs 0.05% expense ratio difference can cost you $150,000+ in compounded growth on a $100,000 investment. Common misconception: 'Active funds with high expense ratios must perform better' — research consistently shows most high-fee funds underperform low-fee index funds over time.