Expense ratio

An expense ratio is the annual fee a fund, whether an ETF or a mutual fund, charges its investors, expressed as a percentage of the money invested. It is automatically deducted from the fund's returns, so investors never see a separate bill for it.

A fund with a 0.5 percent expense ratio costs an investor five dollars a year for every one thousand dollars invested. That fee is charged every year the money stays invested, so even a seemingly small difference in expense ratio can meaningfully erode returns over decades due to compounding.