What reduction does a 1% expense ratio represent for an investor's returns?

A 1% expense ratio represents a direct reduction of 1% from an investor's returns. The expense ratio is essentially the annual fee that funds or other investment vehicles charge their shareholders for managing the fund's investments. This fee is expressed as a percentage of the fund's average net assets and is deducted from the fund's returns.

For example, if a fund has an average return of 8% and an expense ratio of 1%, the actual return an investor would experience is 7%, which is calculated by subtracting the 1% fee from the total 8% return. Thus, the expense ratio directly reduces the returns received by the investor, making it crucial for investors to understand this cost when evaluating potential investments. Therefore, a 1% expense ratio reduces the investor's returns by exactly 1%.