What is the relationship between expense ratios and investment performance?

What is the relationship between expense ratios and investment performance?

Expense ratios represent the costs associated with managing an investment fund. Generally, lower expense ratios can lead to better performance over time, as more of your investment returns are retained.

Can you give me an example of how a high expense ratio affects returns?

Sure! If a fund has a 2% expense ratio, and it generates a 10% return, your actual return would be only 8%. In contrast, a fund with a 0.5% expense ratio would give you a 9.5% return on the same investment.

Are there any exceptions where a high expense ratio might be justified?

Yes, sometimes actively managed funds with higher expense ratios can outperform their benchmarks, especially if they have a strong track record or unique investment strategies.

How can I find the expense ratio of a fund?

You can typically find the expense ratio in the fund's prospectus, on financial websites, or through your brokerage platform.