What is an ETF's expense ratio?

An ETF's expense ratio is the annual operating fee expressed as a percentage of assets. It covers management, administration, custody, and other fund costs.

You typically don't pay it as a direct bill. Instead, it's taken out of the fund's assets over time, which shows up as slightly lower performance compared to a hypothetical fee-free portfolio.

Expense ratios matter most when you're holding for years. When comparing ETFs that target the same exposure, small fee differences can add up, but also check tracking difference and liquidity because those can impact your real-world results too.