One has an expense ratio of 0.01% and the other is 0.05%. I would go with the 0.01% every time because the extra expense isn't justified in an index fund. For actively managed funds, you don't really want to go above 1% for large company funds or 1.25% for small company funds, according to Investopedia.
A reasonable expense ratio for an actively managed portfolio is about 0.5% to 0.75%, while an expense ratio greater than 1.5% is typically considered high these days. For passive funds, the average expense ratio is about 0.12%.
0.03% is very, very good.
Expense ratios vary depending on the type of fund, but benchmarks help identify whether a ratio is reasonable: Index funds. Generally considered cost-efficient if the expense ratio is below 0.2%, with some options as low as 0.03%.
Typically, any expense ratio higher than 1 percent is high and should be avoided. Over an investing career, a low expense ratio could easily save you tens of thousands of dollars, if not more. And that's real money for you and your retirement.
So, if a scheme charges 0.2% as expense ratio, what it essentially means is that 0.2% of AUM will be used to cover operating and administrative expenses of the funds.
The expense ratio is typically expressed as a percentage of a fund's average net assets and can include various operational costs and annual fees. For example, if you invest $10,000 in an ETF with an expense ratio of 0.04%, you'll pay $4 to the fund's manager this year.
The SPY comes with an 0.09% expense ratio, which is the ETF equivalent of fund management fees. An investor who invests $100,000 into the SPY ETF must pay $90 as management fees.
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.
Most passively managed ETFs have lower expense ratios than actively managed mutual funds, but not all ETFs are friendly when it comes to fees. While the lowest-cost ETFs tend to have expense ratios less than 0.10%, the highest cost ETFs have expense ratios exceeding 10%. That's a difference of 100x.
Lower Expense Ratio Means Larger Profit
A $10,000 investment in Fund A, whose expense ratio is only 0.15%, will grow to $57,435 (before fees) over the course of 30 years. A total of $2,389 in fees will be taken out during that time so that the net earnings on the initial $10,000 investment total $45,046.
Low expense ratio: VOO has an expense ratio of 0.03%, one of the lowest among S&P 500 ETFs. This is cost-effective as the value of the investment grows over time.
As of 2023, the average ETF expense ratio was 0.15% for index equity ETFs and 0.11% for index bond ETFs according to a research report from the Investment Company Institute. The average expense ratio for mutual funds was 0.42% for equity mutual funds and 0.37% for bond mutual funds.
Schwab has no account minimum and no commissions for stock, options, and ETF trades. While Schwab doesn't charge any per-trade commissions for options, it does charge $0.65 per contract.
It can depend on the type of fund. Equity mutual fund expense ratios average 0.42%, according to 2023 data from the Investment Company Institute. Hybrid funds average 0.58% and bond funds average 0.37%. 4 A mutual fund expense ratio that is at or below the average is ideal.
In the past year, QQQ returned a total of 25.74%, which is slightly higher than SPY's 24.07% return. Over the past 10 years, QQQ has had annualized average returns of 18.26% , compared to 12.97% for SPY. These numbers are adjusted for stock splits and include dividends.
Invesco QQQ's total expense ratio is 0.20%. Performance data quoted represents past performance, which is not a guarantee of future results.
An ETF's expense ratio indicates how much of your investment in a fund will be deducted annually as fees. A fund's expense ratio equals the fund's operating expenses divided by the average assets of the fund. Typical ETF expense ratios are less than 1%.
Expense Ratios
For example, ticker symbol VOO, the Vanguard ETF that attempts to replicate the S&P 500, has an expense ratio of 0.03%, meaning that for every $1,000 you have invested in the fund, you will “pay” $3 a year in fees. You won't get a bill, it will just be deducted from the returns on the fund.
Mutual fund expense ratios can vary widely, typically ranging from 0.1% to over 2%. Low-cost index funds often have expense ratios below 0.5%, as they aim to track a specific market index and have a passive management style with lower turnover.
What is an expense ratio example? For example, if a mutual fund has an expense ratio of 1%, it means that the mutual fund company charges a fee of 1% of the total assets under management to cover its operating costs. If the mutual fund has total assets under management of Rs.
Vanguard's low fees can help you save * $28,574
As of December 31, 2023, Vanguard's average mutual fund and ETF expense ratio is 0.08%. Industry average mutual fund and ETF expense ratio: 0.44%. All averages are asset-weighted. Industry averages exclude Vanguard.