Expense ratio

What is expense ratio?

An expense ratio is the annual percentage of your money a fund keeps to run itself. It is deducted from returns quietly, every year, whether the fund performs well or badly.

Written by: Suggested Investments Research Team
Content type: Reference definition
Published: 2026-09-13
Last reviewed: 2026-09-13

Small numbers, large consequences

A 0.9% ratio instead of 0.05% costs roughly 0.85% of your balance every year. Over decades that difference compounds against you in exactly the same way returns compound for you.

What it does not include

Trading spreads, brokerage commissions and taxes sit outside the expense ratio, so total cost of ownership is usually higher than the headline figure.

A worked example

On a $100,000 balance, a 0.85% cost difference is $850 in year one — and far more later, because the fee is charged on a larger balance each year.

The mistake people make

Judging a fund on last year's return while ignoring a fee that will be charged every year for as long as you hold it.

How we use it

Our fee-impact tool shows the cumulative drag from any ratio you enter, so the cost is expressed in money rather than basis points.

Sources and methodology

Investor.gov investor education — U.S. Securities and Exchange CommissionPrimary source
SPIVA U.S. Scorecard — S&P Dow Jones IndicesPrimary source

Investing Glossary
Every investing term we use, defined once and in plain English — from compounding and drawdown to Form 13F and share dilution.
Compound interest
Compound interest is growth earned on both your original money and on the growth it has already produced. It is the reason long holding periods matter more th
Dollar-cost averaging
Dollar-cost averaging means investing a fixed amount on a fixed schedule regardless of price. It removes the need to decide when to invest, and it buys more s
Free cash flow
Free cash flow is the cash a business has left after paying the costs of running and maintaining itself. It is the cash that can fund dividends, buybacks, deb
Maximum drawdown
Maximum drawdown is the largest peak-to-trough fall an investment has suffered over a period. It measures the worst stretch an investor would have had to sit
Diversification
Diversification means owning enough different investments that no single failure can decide your outcome. It reduces the damage of being wrong about any one c

Educational information only. Nothing here is a recommendation to buy or sell any investment, and no research measurement removes the risk of loss.