Expense Ratio

The expense ratio is deducted from a fund's assets a little at a time, so it never appears as a charge on a statement. It shows up only as a return slightly below that of the fund's holdings. At 0.50%, $10,000 invested costs about $50 a year.

Broad index funds commonly charge well under 0.10%, and actively managed funds often several times that, since they pay for research and trading. Because the fee applies to the whole balance every year, the gap between two funds compounds rather than staying fixed.

Some costs sit outside it: trading costs inside the fund, sales charges on some mutual funds, and any advisory fee charged on the account. The expense ratio is the part printed in advance, in the fund's prospectus.