The expense ratio is the cost of holding an ETF investment. An ETF that has an expense ratio of 0.5% will cost you $5 in annual fees for every $1,000 you invest. This will be reflected in the price of the ETF each and every day, rather than deducted in a one-time transaction on a specific day.
The same investment would cost only $2.5 if you held it for only 6 months.
What other fees may apply to an ETF investment?
- Trading fees: brokers may charge you a certain amount for trading actions, such as buying or selling ETF shares. This may be either a fixed commission or a percentage-based fee.
- Non-trading fees: these are charges that are not directly related to trading, such as deposit/withdrawal fees or inactivity fees. Not all brokers charge these fees, so check carefully. Long-term passive investors in particular should take care to avoid any inactivity fees, charged by some brokers when you fail to carry out a transaction for an extended period of time.
Want to find the brokers with the best fees? Check them side by side with the help of our comprehensive broker comparison tool.
What else do you need to know about ETFs?
Want to learn more before deciding which is the best ETF for you? Check out these articles to deepen your knowledge:
- What is an ETF?
- What is the difference between mutual funds and ETFs?
- What is the difference between US and EU ETFs?
- What does an ETF portfolio mean?
- How to invest in ETFs?
- How liquid are ETFs?
- How to buy Vanguard ETFs?
- How to buy iShares ETFs?
- What are sector ETFs?
- What is passive investment?
- Are US ETFs only available for US residents?
How can I buy ETFs?
For more info, click here to learn how to buy ETFs online.