The expense ratio is measured as a percent of your investment in the fund. For example, a fund may charge 0.30 percent. That means you'll pay $30 per year for every $10,000 you have invested in that fund. You'll pay this on an annual basis if you own the fund for the year.
Is expense ratio charged every year? Yes, the expense ratio is an annual fee charged by mutual fund companies to cover operating expenses. It is deducted from the fund's assets on a daily basis and reflected in the fund's NAV.
An expense ratio is calculated by dividing a fund's operating expenses by its net assets. So, if you have $5,000 invested in an ETF with an expense ratio of . 04%, you'll pay the fund $2 annually.
Expense ratios are fees that you pay for investing in a mutual fund, but you don't have to pay the fee out of your pocket. Instead, the mutual fund automatically accounts for the fee when it calculates its share price at the end of each day.
A number of factors determine whether an expense ratio is considered high or low. A good expense ratio, from the investor's viewpoint, is around 0.5% to 0.75% for an actively managed portfolio. An expense ratio greater than 1.5% is considered high.
SPY is more expensive with a Total Expense Ratio (TER) of 0.0945%, versus 0.03% for VOO. SPY is up 28.31% year-to-date (YTD) with +$7.13B in YTD flows. VOO performs better with 28.36% YTD performance, and +$103.99B in YTD flows.
Expense ratio is the annual maintenance charge levied by mutual funds to finance its expenses. It includes annual operating costs, including management fees, allocation charges, advertising costs, etc. of the fund.
For a typical 401(k) plan, the expense ratio should be no higher than 2% and more likely in the 1.0% to 1.5% range. The lower the expense ratio the better, with higher fees eating into profits.
ETF fee example
Each day, approximately 1 cent would be accrued ($4/365 days), and then deducted on a monthly basis, so after 12 months your investment would be worth around $9,996 (assuming no change in the market value of the fund holdings).
The expense ratio in a mutual fund is indicated as a percentage of the total AUM (Asset under management), representing the fund's operating expenses. These expenses are deducted from the AUM to declare the fund's NAV (Net asset value) daily, thereby reducing the overall return from the mutual fund.
The ETF expense ratio, which is calculated annually and disclosed in the fund's prospectus and shareholder reports, directly reduces the fund's returns to its shareholders, and, therefore, the value of your investment.
YTD Earnings refer to the amount of money a Mutual Fund investor has earned from the beginning of the year up to the current date. To calculate the amount, one must subtract the expenses from the revenue. This helps investors track their goals and estimate expense ratios, tax payments and other overhead costs.
Reflecting mostly administrative and investment management costs, 401(k) fees spring from two sources: the plan provider and the individual funds within the plan. Although individual investors can't do much about plan provider fees, they can choose funds within the plan with lower expense ratios.
What is a good expense ratio? Typically, ETFs have lower expense ratios than mutual funds. Generally, low-cost equity ETFs will have a net expense ratio of no more than 0.25%. Low-cost equity mutual funds will have expense ratios of 0.5% or lower.
By far the largest component of 401(k) plan fees and expenses is associated with managing plan investments. Fees for investment management and other investment-related services generally are assessed as a percentage of assets invested. You should pay attention to these fees.
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
It is important to note that while the expense ratio is an annual fee, it is not charged once every year. Instead, it is subtly deducted daily from the mutual fund's net asset value (NAV).
However, in most cases, the change in total expense ratio is quite small such as a change of around 0.01% and such small changes can occur quite frequently.
This fee is expressed in the form of an expense ratio, which tells you what percentage of your overall investment will go to cover the fund's operating costs each year. For example, if you invest in a fund that has an expense ratio of 1%, then you'll pay the fund $10 per year for every $1,000 invested.
Nowadays, an expenditure ratio greater than 1.5% is usually regarded as excessive. A suitable range for an actively managed portfolio's expense ratio is 0.5% to 0.75%. The percentage for passive or index funds is typically 0.2%, however, it occasionally drops to 0.02% or less.
Berkshire Hathaway owns two exchange-traded funds (ETF), The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO). Both of these ETFs track the S&P 500.
For example, you might buy SPY if you want to trade actively, or even venture into day trading, because of its high volume. You might consider buying VOO to hold over the long term because of its lower expenses.
Average Return
In the past year, QQQ returned a total of 25.74%, which is slightly higher than VOO's 24.33% return. Over the past 10 years, QQQ has had annualized average returns of 18.26% , compared to 13.04% for VOO. These numbers are adjusted for stock splits and include dividends.