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What is the relationship between expense ratios and investment performance?

An example of an AI chatbot conversation about expense ratios and their impact on investment performance.

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You

What is the relationship between expense ratios and investment performance?

MagicBuddy
MagicBuddy

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.

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You

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

MagicBuddy
MagicBuddy

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.

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You

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

MagicBuddy
MagicBuddy

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.

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You

How can I find the expense ratio of a fund?

MagicBuddy
MagicBuddy

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

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