Indexes and funds

Expense Ratio

The yearly fee a fund charges, as a percentage of the money invested in it.

Why does it matter?

It is taken out every year, whether the fund goes up or down, so it adds up over time.

How do I read it?

A fee of 0.1% costs $1 a year for every $1,000 invested; a fee of 1% costs $10. Because of compounding, small differences in fees can become large over many years.

Example

$10,000 growing 7% a year for 30 years becomes about $76,000. With a 1% yearly fee, the growth is closer to 6%, and the result is about $57,000.