Expense Ratio
The expense ratio is the hidden fee associated with a mutual fund. The fee ranges from .2-2.0 percent. The average is around 1.5%. The ratio is all the costs for running the fund in one lump composite figure. The costs of marketing, management, mailers, employees, analysts. The expense ratio should be looked at because the fees make a big difference on the overall long term performance of the fund. The expense ratio comes out of the fund regardless of the performance. Many fund managers get around one percent of the fees for their personal pay. If you take one percent of a fund like Fidelity Magellan that has billions of dollars in it, you are bound to make a lot of money just off this fee.
The fees are hidden because you don't pay it up front. You must read the prospectus to find the fees. I have never had an investment professional point out the fees before purchasing. They merely ask if you have read the prospectus. Why? By law, financial institutions can't sell you a fund without you having read the prospectus first. The sad part is that most people don't read them or have the ability to understand them.
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