If you’ve ever tried to choose a mutual fund or ETF, you know how quickly the options stack up when managing long-term investing. Thousands of funds. Dozens of acronyms. More charts than you could possibly know what to do with.

But underneath all that complexity are just a few simple questions that matter:
What am I paying? What am I getting? And is it helping me build wealth?

As an index fund investor, I focus on low-cost options that consistently deliver what they promise – broad market exposure, long-term compounding, and minimal fees.

Here are are four things to look for when evaluating a mutual fund or ETF and how I go about analyzing such funds for long-term investing.

Start With the Expense Ratio – Because Fees Compound Too

The expense ratio is the annual fee the fund charges to manage your money. It’s expressed as a percentage of your investment. And while it might look small, it adds up over time.

• A 1% fee on a $100,000 portfolio is $1,000 a year.
• But over 30 years, that’s not just $30,000—it’s $30,000 plus all the compounding growth that money could’ve earned.

Index ETFs often have expense ratios below .1%. Compare that to many actively managed mutual funds charging 0.75% to 1.25%, or possibly more, and you start to see the gap.

If you’re going to pay a fee, you should know if it’s worth it. And a larger expense ratio doesn’t usually equate to better performance.

Review Long-Term Performance – After Fees

Once you’ve narrowed it down to low-cost funds, performance matters, but context is everything.

Here’s how to evaluate:

• Look at 5-, 10-, and 15-year annualized returns, not just the 1-year charts. The longer-term performance is far more telling
• Compare those returns to the fund’s benchmark – but make sure you compare it to the right benchmark. An S&P 500 index fund should closely track the S&P 500. If it trails consistently, something’s off. If you’re looking at a growth fund, you should compare it to a growth index – not the S&P 500 or other part of the market
• Factor in fees. Performance figures listed on fund websites often don’t include fees or they share both figures. You always want to calculate the after-fee number, just in case.

Example:

Let’s say:

• Fund A (actively managed) returned 9.5% annually over 10 years with a 1% fee.
• Fund B (index ETF) returned 9.3% annually over the same period with a 0.05% fee.

Even though Fund A is managed to “beat the market,” its post-fee performance lags well behind the index. With the fee it’s showing an 8.5% annual return over 10 years, compared to 9.25% for the index fund.

That’s the number that matters: return after costs, not before.

And if Fund A is taking bigger risks to try to beat the index? You might actually be paying more for more volatility without better results.

Know What You Actually Own

Before you invest, take a peek under the hood.

• An S&P 500 ETF (like VOO or SPY) holds exactly what it says: 500 large U.S. companies.
• A “growth opportunities” mutual fund might hold a few big names—and a lot of small, speculative bets.
• A dividend ETF might skew toward certain sectors, like utilities or financials, especially in certain economic environments. This could mean less growth.

Most ETFs update their holdings daily. Mutual funds report quarterly. Either way, take five minutes to scan the fund’s top holdings.

If it doesn’t align with your goals – or looks riskier than you expected – it’s worth reconsidering.

Look for Hidden Costs: Turnover, Load Fees, and Taxes

Low fees and solid performance are great, but don’t forget the hidden layers:

Turnover Ratio

This measures how often a fund buys and sells its holdings. Higher turnover will result in higher trading costs and more potential taxes.

• Index ETFs tend to have very low turnover (potentially a few percentage points).
• Actively managed mutual funds may be 50% or more – meaning the portfolio is turned over every two years or less.

Load Fees

Some mutual funds charge front-end loads (fees provided to the sales person placing you in the fund when you buy) or back-end loads (fees provided to the sales person placing you in the fund when you sell). Avoid these. Many no-load options exist with similar or better performance.

Tax Efficiency

ETFs are typically more tax-efficient due to their structure (in-kind share redemption). If you’re investing in a taxable account, this can save you a chunk in capital gains distributions.

If you need guidance on this process, make sure to reach out as this is a very important subject, both for your investment returns today, as well as your long-term wealth creation.