A breakdown of expense ratios and basis points, the fees you pay when you invest in funds. Learn how these costs compound over time and why even small differences in fees can cost you thousands of dollars in retirement.
Keeping expense ratios of your investments low should be a goal for any savvy investor. An expense ratio is a measure of a mutual fund or exchange traded fund's operating costs relative to its assets. In financial conversations, you will sometimes hear expense ratios expressed as basis points, or BIPs for short. When I say basis point, that is referring to 1/100th of a percentage point. If you have an investment that has an expense ratio of 0.12%, that is the same as saying the fund has an annual fee of 12 basis points. If your investment is $100,000, you owe 120 bucks as the expense ratio. Anything below 20 basis points doesn't matter. The goal is not to go from nine basis points to seven. The goal is to go from 145 basis points to nine.
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