What is Expense Ratio?
The annual fee a fund or ETF charges, expressed as a percentage of assets — quietly deducted from returns every year.
Educational — not investment advice
An expense ratio of 0.50% means you pay $5 per year for every $1,000 invested, taken automatically out of the fund’s value. It sounds tiny, but because it compounds against your balance every year, the drag is large over decades.
Over 30 years, the difference between a 0.05% index fund and a 1.0% active fund can consume a meaningful share of your final wealth — often tens of percent — for the same gross returns.
The trap most people miss
The expense ratio isn’t the only cost — trading costs, bid-ask spreads and taxes on turnover aren’t included in it. A "cheap" fund that trades heavily can cost more than its headline ratio suggests.
Frequently asked about Expense Ratio
What is a good expense ratio?
Broad index ETFs often charge under 0.10%. Anything above ~0.50–1.0% deserves scrutiny — you should be getting something real for it.
Do I pay the expense ratio separately?
No. It’s deducted automatically from the fund’s assets, so you never see a bill — which is exactly why it’s easy to ignore.
Related terms
In Tradune: look through your ETFs to their real holdings.
Track what you actually own
Tradune puts every holding in one place — no brokerage login — and measures your return against a buy-and-hold SPY twin funded on your own dates.
Start freeFree for everyone right now · no card · nothing to buy
This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.