What fees are you paying in your investment portfolio? There is no such thing as a free lunch in the world of investing, so it’s important to understand the underlying costs of the investments you own, which are captured in the expense ratio.

 

Expense ratios are the operating expenses of a mutual fund, index fund, or ETF and they can vary widely. But the good news is that information on expense ratios is readily available online.

 

Expense ratios are always expressed as a %, and they reduce your return as an investor, which is why it’s important to invest in funds with reasonable fees. For example, if you invest in a mutual fund with a 1% expense ratio or fee, and the fund return was 10%, after fees you actually earned 9% that year.

 

So the lower the fee, the higher your net return will be in that investment.

 

With a lot of low-cost funds out there to invest in, the expense ratio is an important consideration when constructing your portfolio, and it’s an important consideration when assessing the total cost of investing.

The takeaway here is to keep in mind that investing isn’t free and while it’s not necessarily the best strategy to buy the lowest cost investment you can find, understanding expense ratios or the underlying fees of the investments you own is an important consideration when calculating your total investment fees.

That’s it for today. Thanks for listening.

Tomorrow we’re going to switch gears and talk about cost basis.

My name is Ashley Micciche...and this is the One Minute Retirement Tip.

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