A good expense ratio, from the investor's point of view, ranges from 0.5% to 0.75% for an actively managed portfolio, such as an IRA Gold account. A spending ratio greater than 1.5% is considered high, and mutual fund spending ratios generally tend to be higher than those of ETFs. While ETF spending ratios don't exceed 2.5%, mutual fund costs can be significantly higher. Operating fund costs vary widely depending on the investment category, investment strategy, and fund size. Those with higher internal costs generally transfer these costs to shareholders through the expense ratio.
For example, if a fund's assets are small, its spending ratio may be relatively high, since the fund has a restricted asset base with which to cover its expenses. In most cases, an expense ratio is the total cost of operating a fund divided by the fund's assets. The higher those operating costs, the higher the expense ratio, which is why actively managed funds tend to have higher spending ratios. Actively managed funds are managed by a human rather than a computer.
There is a lot of variation between different types of funds if you look at how much you'll be charged based on the spending ratio. Investors could see anything in the range of 0.10% to 0.75%. Generally, a good cost ratio will be less than 0.20% in most situations. It's a good idea to delve into the details and understand how expenses are calculated and what is used for the fund you're interested in.
