The expense ratio is calculated by dividing a fund’s operating expenses by the average total dollar value of all the assets within the fund. For example, if a fund has an expense ratio of 0.50%, it means the fund will charge $5 annually for every $1,000 invested.
Why It Matters
Over time, even a seemingly small expense ratio can drastically reduce your investment returns due to the loss of compounding. Choosing funds with low expense ratios is one of the most reliable ways to maximize long-term wealth growth.