Your Net WorthExpense ratio
An expense ratio is the annual fee a fund charges its investors, expressed as a percentage of assets under management.
If a fund has a 0.5% expense ratio, it deducts roughly £5 a year for every £1,000 invested. That charge is taken from the fund's returns before they reach you, so a 7% gross return becomes a 6.5% net return.
Expense ratios vary widely. Broad global index trackers often charge below 0.25%. Actively managed funds can charge 0.75% to 1.5% or more. The difference sounds small, but over decades the same gap compounds into a significant drag on final wealth.
In the UK the published number is often the Ongoing Charges Figure (OCF), which includes most fund costs. In the US it is usually the expense ratio. Either way, it is one of the few predictors of future returns you can control.