The higher the cost ratio, the more it will affect your returns. One of the most important factors affecting a fund's spending ratio is whether it is actively or passively managed. The best cost ratio is 0%. Surprisingly, some passive fund managers are starting to offer index funds with 0% spending ratios.
A good spending ratio for an investment fund is less than 1%. Let's say you send two teams of runners to run a marathon, but you need one team to carry 25-pound backpacks. Which team do you think is most likely to have the best average time? What is reasonable? It depends on the type of fund. Index funds should have the lowest fees, since they cost relatively little to operate.
You can easily find an S%26P 500 index fund with an expense ratio of less than 0.2%, for example. For mutual funds that invest in large U.S. companies, look for an expense ratio of no more than 1%. And for funds that invest in small or international companies, which usually require more research, look for an expense ratio of no more than 1.25%.