Q&A: Does An ETF's Expense Ratio Cover All Its Related Costs?

Q&A: Does An ETF's Expense Ratio Cover All Its Related Costs?
Carl Hazeley

almost 3 years ago1 min

Question from Finimizer Doug in Florida, USA: “Does the ‘expense ratio’ of an exchange-traded fund (ETF) cover all the costs involved in a transaction, or could there be other, hidden costs?” ”

Answer from lead analyst Carl: “An ETF’s expense ratio covers most of the ongoing costs of holding the investment, including management fees, administration, and so on. But it doesn’t cover the cost of the transaction itself. You might have to pay commissions upon buying and selling the ETF via your broker, and in some cases you could be billed for the costs of trading within your chosen ETF. And even then, certain ETFs – like those that track volatility futures contracts – come with a major drawback as far as costs go: whenever the ETF reinvests in new futures contracts (which it does whenever the old ones expire), you have to pay a fresh batch of fees.”

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG