Expense Ratio

The expense ratio is a fund's yearly operating cost expressed as a percentage of assets. A 0.60% expense ratio means $6 a year for every $1,000 invested.

You never write a check for it. It is subtracted from the fund's assets continuously, which is precisely why it is easy to ignore and why it does so much damage over time.

The difference between a 0.03% index fund and a 1.00% actively managed fund looks trivial and is not. Over 30 years on a $100,000 investment growing at 7%, that gap consumes roughly $180,000 of ending wealth.

Broad index funds and ETFs now routinely charge under 0.10%. For most investors, choosing low-cost funds is the single most reliable way to improve long-run returns, because costs are the one variable you actually control.