The expense ratio varies from mutual fund to mutual fund. But the expense ratio is usually higher in stock funds than in bond funds. Also, international and precious metals funds have higher expenses than domestic funds. Some of the lowest expense ratios can be found in index funds and fixed income funds. Currently, the average expense ratio ranges from 0.75-1.75%.

Now, as a Buck investor, you know that every dollar in your portfolio that you keep invested is extremely important to your overall wealth. Well, over time, this expense can add up to quite a large sum of money, as you can see in this example:

Let's say that you decide to invest $5,000 in mutual fund ABCDX that earns a 10% return per year and that charges an expense ratio of 2%. After 5 years, you will have paid that mutual fund $641.95 out of your own portfolio, which would still be worth $7297.43, a total return of 46%.

The expense ratio may seem like kind of a nuisance but really it isn't. Sure, it does lower your investment over time and can cost you quite a bit of money, but it is that expense ratio that keeps these mutual fund families in business and allows you to diversify your portfolio easier than going out and buying 50 stocks on your own.

So this service comes at a price. But that does not mean you can minimize that cost to yourself. You can "shop around" (or research) many different mutual funds and look for a similar fund with a lower expense ratio. For example, if you find two funds that appear to perform equally and hold most of the same stocks and one offers a lower expense ratio, then perhaps that mutual fund might be better for you. Of course, you should also compare all the other fees as well. Here's a good example of how much you could save by investing in a similar mutual fund.

Ok, instead of investing in mutual fund ABCDX, you decide to invest in a similar fund. You invest $5,000 and earn a 10% return but you only pay an expense ratio of 1.25%. After 5 years, you will have paid out $408.38 in expenses and your portfolio would be worth $7561, a total return of 51.2% So by investing in a fund with an expense ratio just 0.75% a year less, you earned $263 more!

We hope you learned a little more about this fee. Next time when you're looking for a new fund to invest in, compare some of their expense ratios to help you pick the best one. You'll thank yourself for doing that 30 or so years down the line when you're enjoying your comfortable retirement.