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Expense ratio

Expense ratio

The expense ratio (ER) of a fund is the ratio of total annual costs to the value of assets.

The ETF VOO has an expense ratio of 0.03% at the time of this writing. That means you'll pay about 3 cents USD per year for every 100 USD of assets (S&P 500 stock) you own. Actively managed funds typically have much larger expense ratios, sometimes exceeding 2%, due to the large fees paid to the investment managers or advisors. Other expenses pay for recordkeeping, custodial services, taxes, legal expenses, and accounting. High expense ratios are typically bad – they are not correlated with higher returns, but in fact are correlated with lower returns after accounting for fees.

Related Links

Investopedia's article on expense ratios

Wikipedia's article on expense ratios