Expense ratio
Also called: ongoing charge, OCF, management fee, the invisible leak, fee
The percentage of your money a fund charges each year, taken automatically whether it performs or not.
Charged every year on the whole balance, not once. That is why a figure that sounds trivial is not.
On 100,000 over thirty years at an assumed 7%, paying 1% a year rather than 0.2% costs about 145,000 — roughly a fifth of the final amount. At 2%, closer to two-fifths.
It is also not the whole cost. Platform or account fees, advice fees, transaction costs and currency conversion may sit on top. What matters is the total, added up as one percentage.
Returns are unknowable; costs are printed in advance. It is the one part of investing you can both control and predict.
Words on this page
- Broker — The business that buys and sells investments on your behalf — the shop, not the merchandise.
- The invisible leak — Investment fees — small, automatic, charged every year, and almost never noticed.
Related terms
Covered properly in Learn.