When it comes to investing, there are a lot of things to consider. One of the most important things to look at is the expense ratio. The expense ratio is the percentage of your assets that goes towards fees and expenses. For example, if you have a $100,000 portfolio and your expense ratio is 0.50%, that means you’re paying $500 per year in fees and expenses.
If you’re thinking about opening a Robinhood account, you might be wondering what their expense ratio is. In this blog post, we’ll take a closer look at Robinhood’s expense ratio and how it compares to other investment options.
What is Robinhood’s Expense Ratio?
Robinhood’s expense ratio is 0.30%. This means that for every $10,000 you have invested with Robinhood, you can expect to pay $30 per year in fees and expenses. When compared to other investment options, Robinhood’s expense ratio is very competitive. For example, Vanguard’s S&P 500 index fund has an expense ratio of 0.04%. This means that for every $10,000 you have invested with Vanguard, you would only be paying $4 per year in fees and expenses.
Why Does the Expense Ratio Matter?
The expense ratio matters because it can have a big impact on your returns over time. Let’s say you have a portfolio with an annual return of 7%. If your expense ratio is 0.50%, then your net return would be 6.5% (7% – 0.50%). However, if your expense ratio was 0.30%, then your net return would be 6.7% (7% – 0.30%). While this may not seem like a big difference, over time it can add up to a substantial amount of money.
For example, let’s say you have a $10,000 portfolio that earns an annual return of 7%. We’ll assume that the portfolio stays invested for 25 years and there are no additional contributions or withdrawals made during that time period. If the expense ratio on the portfolio was 0.50%, then the value of the portfolio at the end of 25 years would be $67,585. However, if the expense ratio on the portfolio was 0.30%, then the value of the portfolio at the end of 25 years would be $69,360—that’s almost $2,000 more!
Conclusion:
When considering any investment option, it’s important to take a close look at the expense ratio. The expense ratio is the percentage of your assets that goes towards fees and expenses—the higher the percentage, the higher your annual costs will be. When compared to other investment options, Robinhood’s expense ratio is very competitive at just 0.30%. This can make a big difference over time when compounded annually on a growing portfolio size!
