It's just how we've been doing business for more than 40 years. Industry average mutual fund and ETF expense ratio: 0. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc. All investing is subject to risk, including the possible loss of the money you invest.
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The difference between these two figures has to do with some of the incentives fund companies use to attract new investors through fee waivers and reimbursements. According to Morningstar, expense ratios for both ETFs and mutual funds are trending downward.
Among actively managed funds, the average expense ratio in was 0. For passively managed funds, the average expense ratio was 0. For an actively managed mutual fund, Miko advises her clients that a reasonable expense ratio ranges between 0. For passive funds that simply mirror an index, Miko says costs for fund management are minimal and advises clients that expense ratios between 0. Not all funds have expense ratios, though. For investors who are cost-conscious, Fidelity launched a line of no-expense ratio ETFs in There are currently four ETFs in this category.
If having more control over when you pay taxes on your portfolio is important to you, one should consider that difference. Sachs also suggests investors consider how a particular fund fits into their portfolio and overall investment strategy. Over time, expense ratios can have a significant impact on your returns from mutual funds and ETFs.
While an expense ratio may look like a small, one-time annual expense, your investment portfolio is actually hit with a double whammy. Then, your lower returns are magnified by the smaller amount of money you have to compound over time. What if you choose a fund with a slightly lower expense ratio? With the same contributions and performance over time, a fund with an expense ratio of 0.
A fund with a lower expense ratio might not be the best match for all investors, however. In addition to any tools your brokerage offers, several online tools make comparing funds and expense ratios easy:. If you want more guidance about factors to consider when choosing investments, a financial advisor can help direct your investment choices.
Those looking for a hands-off approach may consider a robo-advisor to keep costs low while maximizing potential returns. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree. Select Region. United States.
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