Expense ratio
The annual fee a fund charges, as a percentage of your money.
It is deducted quietly, every year, whether the fund performs or not. And it compounds against you exactly as returns compound for you.
Over a forty-year horizon, a 1% annual fee typically consumes something in the order of a quarter of your final pot. This is the least glamorous and most reliable improvement available to any investor.
What a 2% fee costs over thirty years
Both lines earn the same 8%. One pays 0.07% a year, the other pays 2%. The gap is not a rounding error, it is most of the point of the exercise.
It is one of the very few variables you can control with certainty.
Dismissing a 1% fee as small. Compare it to a 0.07% tracker and then compound the difference for thirty years.
Related terms
See Expense ratio on a real company
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