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  Monday November 20, 2017

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HOW DOES THE EXPENSE RATIO AFFECT INVESTMENT RETURN?
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While a difference of a percentage or so between two very similar funds may not seem significant to a small investor in any given year, this difference can be very significant to a large investor or even to a small investor over time. For example, a fund with a return of 5 percent and an expense ratio of 1.25 percent would report a cost of $12.50 on a $1,000 investment at the end of the first year; but by the end of the tenth year, the cost would grow to more than $150.

If investors have a good relationship with a trusted broker or want to be able to move assets between different family funds, they may be willing to invest in a fund with a higher expense ratio. If two funds with the same objective have significantly different return histories, perhaps the expense ratio can shed some light on that. But all other factors being equal (and they seldom are), a mutual fund offering a lower expense ratio usually will show a better return over a mutual fund with a higher expense ratio.

Now a few concluding remarks.




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