1. What is an Expense Ratio?

The expense ratio represents the annual fee that all funds or ETFs charge their shareholders. It expresses the percentage of assets deducted each fiscal year for fund expenses, including management fees, administrative costs, and other operational expenses.

2. How ETF Fees Are Calculated

The calculator uses the following simple formula:

Where:

• \( Investment \) — The amount of money invested in the ETF
• \( Expense\ Ratio \) — The annual fee percentage charged by the ETF

Explanation: The expense ratio is converted from a percentage to a decimal (by dividing by 100) and then multiplied by your investment amount to determine the actual dollar amount you'll pay annually.

3. Importance of Expense Ratio

Details: Even small differences in expense ratios can have a significant impact on your investment returns over time due to the power of compounding. Lower-cost ETFs generally outperform higher-cost ETFs over the long term.

4. Using the Calculator

Tips: Enter the ETF's expense ratio (found in the fund's prospectus) as a percentage and your total investment amount. The calculator will show you the actual dollar amount you'll pay in fees each year.

5. Frequently Asked Questions (FAQ)

Q1: What's a good expense ratio for an ETF?
A: Generally, under 0.20% is considered good for passive index ETFs, while under 0.75% may be acceptable for specialized or active ETFs.

Q2: Are ETF fees charged monthly or annually?
A: The expense ratio is an annual fee, but it's calculated and deducted daily from the fund's assets.

Q3: Do I pay ETF fees directly?
A: No, fees are automatically deducted from the fund's assets, which reduces the fund's net asset value (NAV).

Q4: How do expense ratios compare between ETFs and mutual funds?
A: ETFs typically have lower expense ratios than mutual funds, especially actively managed mutual funds.

Q5: Can expense ratios change over time?
A: Yes, though changes are typically small. Funds may lower fees due to competition or economies of scale.