Expense Ratio?

Don’t buy a mutual fund based on the expense ratio. Buy it based on its track record, its average annual rate of return.

QUESTION: Georgette is trying to get her 401-K set up the way Dave says.  She has read something about an expense ratio – what is that?

ANSWER: The expense ratio is the percentage of the investment that they charge you for annual maintenance fees and commissions.  If it has a very low expense ratio, then it is a mutual fund that doesn’t sell very often. 

For example, you saw one expense ratio of 1.1 and that was probably an aggressive growth mutual fund.  Those are sold all the time, so the expenses are higher.  A growth and income mutual fund would have very low expenses because they are rarely sold. 

Don’t buy a mutual fund based on the expense ratio.  Buy it based on its track record, its average annual rate of return.  You should glance at the expense ratio to make sure it’s not extreme, but make sure you’re choosing mutual funds with good, 5-10 year track records.

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