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Expense Ratio

An expense ratio is the annual fee a mutual fund or ETF charges, expressed as a percentage of your investment. It is deducted automatically from the fund’s returns, so you never see a bill — but over decades even small differences compound into large amounts. Index funds typically charge under 0.1%, while active funds often charge 0.5–1%.

Example

On $100,000 invested for 30 years at 7%, a 1% expense ratio costs about $180,000 more than a 0.05% ratio.

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