Expense ratio
The yearly fee a fund charges, expressed as a percentage of your invested money.
An expense ratio is the percentage of fund assets that go toward paying the fund's operating costs every year — manager salaries, marketing, administration, profit. A 0.30% expense ratio means 0.30% of your invested balance is taken every year.
Index funds (which mostly buy and hold a market index) have low expense ratios because they don't require expensive analysts to pick stocks. Total US market index funds at major brokerages charge between 0.02% and 0.05%.
Actively managed funds (which try to beat the market) charge much more — typically 0.5% to 1.5%. The data is overwhelming and well-documented: most actively managed funds underperform their index over 10+ years, after fees. The fee is what causes most of the underperformance.
Expense ratio is the single most important field on a fund fact sheet. If it's not listed prominently, that's by itself a signal.
Example
A fund with a 0.5% expense ratio takes $50/year out of every $10,000 you have invested — silently, automatically, regardless of performance.
Why this matters
Fees compound the same way returns do. A 0.5% fee versus a 0.05% fee, over 40 years, is worth roughly 18% of your final balance.
The catch
Expense ratios aren't billed to you separately. They're netted out of the fund's return — invisible on your statement. Most people never look them up. Many "default" 401(k) funds quietly charge 5–15× what they need to.