Mutual fund expense ratios affect returns a great deal. The more money that is siphoned off in fees means that less ends up in your pocket. The U.S. Securities and Exchange Commission (SEC) has issued an official bulletin to raise awareness of the full impact of high fees. It uses an example of a $100,000 investment averaging a 4% annual return over 20 years, which would more than double to just under the $210,000 mark with an acceptable 0.25% annual fee. A fund charging 0.5%, a seemingly negligible difference, lowers the end result by some $10,000. A 1% annual fee shaves off a whopping $30,000.

You don't get a better fund by paying more in fees. High-fee funds generally tend to underperform compared to their lower-cost peers. These funds sometimes also feature front-load fees, which are basically additional buy-in fees on top of the annual fee. If you put $100 into such a fund, it can charge a one-time fee of, for example, 3%. That means you only get $97 in your account right off the bat. Then, it charges an additional 1% annual fee out of that $97, starting on the day when the money landed in the account.

Determining what fees a fund charges can be difficult, as the shadier companies are adept at hiding the actual costs. The Financial Industry Regulatory Authority (FINRA) offers a free fund analyzer that cuts through the fog of more than 18,000 mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

Hot Definitions
  1. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  2. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  3. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  6. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
Trading Center