Expense Ratio
The annual percentage of assets a fund charges to operate.
What is Expense Ratio?
Deducted daily from fund assets, so it never appears as a line item on a statement. It compounds against the investor every year and is one of the few reliable predictors of relative fund performance.
Expense Ratio: a worked example
0.75% versus 0.05% on $500,000 over 30 years is a difference well into six figures.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.