What is an Expense Ratio?
An expense ratio is the annual operating fee charged by an ETF or mutual fund manager to cover portfolio administration, indexing, and custody. It is deducted automatically from the fund's daily Net Asset Value (NAV)—you never receive a separate bill, which makes high expense ratios a silent wealth killer.
The 30-Year Math of 0.03% vs. 0.75%
- 1 Basis Point (1 bps) = 0.01%.
- Broad index ETFs like Vanguard VOO (
0.03%= $3/year per $10,000) or Fidelity ZERO Total Market (FZROX,0.00%) keep nearly 100% of market returns in your pocket. - An actively managed mutual fund charging 0.75% to 1.00% on a $250,000 portfolio growing at 8% over 30 years drains over $480,000 in lost compounding compared to a 0.03% index ETF.