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Dear Fellow Fools,
I can't thank you enough for helping a simple fool like
me to understand the world of investing,having said that here is my question. I have decided to fund my Roth IRA with a Mutual Index Fund like Vanguard or one of the others, while reading the chart of Index Funds I see a catagory called Expense Ratio and I don't know what that means. Please explain this for me and if there are other catagories that are not easily understood your help with these will be greatly appreicated.

Sincerly with thanks and awe,
Mooska
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Greetings Mooska,

I feel sure that you will get a great explanation of exactly how this is figured etc. from a really knowledgable fool. Quickly, though, it just means that there is no free lunch. This is the amount the company charges for maintenance of the fund.
I, too, am new so like I said you will get a much better response from the veterans.
Live long and prosper.
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Greetings, Mooska, and welcome. You asked:

<<I have decided to fund my Roth IRA with a Mutual Index Fund like Vanguard or one of the others, while reading the chart of Index Funds I see a catagory called Expense Ratio and I don't know what that means. >>

I thought I answered your query already, but I don't see the response on the board. Therefore, if this duplicates something I already said, you know why.

The expense ratio is simply the relationship between fund expenses for administation/accounting costs, legal fees and investment advisory fees to the net assets of the fund. Expenses used include 12b-1 fees, which are charges for advertising distribution costs, but don't include brokerage costs, loads or redemption fees. The latter are reported separately. The higher the expense ratio, the more costly the fund and the lower your net total return as a result.

Regards....Pixy
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The expense ratio is simply the amount that Vanguard or Fidelity (the Fund Family) will charge you for investing your money with them. This expense ratio is used to pay the fund manager, operating expenses etc. Some funds have additional charges called 12b-1 fees that are paid to folks who sell the funds, if you purchase a funds through a bank or financial advisor, the fund family will pay the bank or advisor a 12-1 fee. These fees if there are any, are an additional component of the expense ratios, Any front or back end loads are seperate, try to avoid charges that carry loads.
The Vanguard S&P 500 index fund is very inexpensive, The expense ratio is only 0.19%. This means that for every $1,000 dollars you have invested, Vanguard is going to charge you $1.90. This fee is taken directly out of the returns, so if the fund earns 10% for the year, you will actually realize a 9.81% gain.
Hope this helps.











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