How do fund expense ratios affect long-term investment returns, and why should investors compare them before investing?

The expense ratio is the annual fee charged by a fund to manage investments, expressed as a percentage of assets under management. Over the long term, even a small difference in expense ratios can significantly impact total returns due to compounding effects. For example, a fund with a 1.5% expense ratio will reduce annual returns more than a similar fund with a 0.5% ratio. Investors should compare expense ratios to ensure they are not paying unnecessarily high fees, especially if two funds offer similar returns. Lower expense ratios are generally better, particularly in passive funds like index funds. While fees are not the only factor, they play a key role in maximizing long-term investment growth.