Low Expense Ratio ETFs Explained in Detail

Low expense ratio ETFs are a great way to save money on investment fees. They charge lower fees compared to actively managed funds.

A low expense ratio is typically around 0.10% to 0.20% per year, which is significantly lower than the 1% to 2% charged by some actively managed funds.

Investing in low expense ratio ETFs can help you keep more of your returns, as you're not paying a lot for management fees. This can add up over time, especially if you're investing a large amount of money.

The Vanguard Total Stock Market ETF, for example, has an expense ratio of just 0.04%. This means that for every $1,000 you invest, you'll pay only $0.04 in fees per year.

Low expense ratio ETFs are a great option for investors looking to save on fees. An expense ratio of 0.04% or less is generally considered low.

Investing $10,000 in an ETF with a low expense ratio can save you $40 in fees compared to a fund with a higher expense ratio. This may not seem like a lot, but it can add up over time.

ETFs with low expense ratios often have lower operational costs, which means the fund's manager is not taking as big of a cut from your investment. This can result in higher returns for you, the investor.

The fees for an ETF include expenses such as administrative fees, compliance fees, management fees, marketing fees, record-keeping fees, auditing fees, legal fees, and shareholder service fees. These fees can eat into your returns, so it's essential to look for ETFs with low expense ratios.

Here are some examples of fees you might pay in an ETF:

The gross expense ratio is the fund's total annual operating expense ratio, gross of any fee waivers or expense reimbursements. This means that even if the fund manager waives some fees, the gross expense ratio will still reflect the total costs.

Low expense ratio ETFs offer several benefits that can help you save money and make your investments more efficient.

Historically, the average expense ratio for index ETFs is lower than that of index mutual funds, coming in at 0.52% compared to 0.85% for mutual funds.

The higher costs of mutual funds can add up and impact portfolio returns over the long run, which is why it's essential to choose low expense ratio ETFs.

From 2008 to 2023, the average index equity ETF expense ratios declined by 15%, and average index bond ETF expense ratios fell by 30%.

In 2023, the average expense ratio for index equity ETFs declined 1 basis point to 0.41%, and the average expense ratio for index bond ETFs declined 1 basis point to 0.21%.

Low expense ratio ETFs are a great way to save money on investment fees, but with so many options available, it can be overwhelming to choose the right one. Fortunately, there are some simple strategies to help you find the best low expense ratio ETFs.

To find low expense ratio ETFs, you can use an ETF screener, which allows you to search for ETFs with low expense ratios in categories that interest you. For example, if you're looking for a dividend-focused ETF with a low expense ratio, you can search for ETFs with dividend yields greater than 2%.

Here are some key features to look for in a low expense ratio ETF:

By considering these factors, you can find low expense ratio ETFs that meet your investment goals and fit your budget.

You can find ETFs through various channels, including brokerages and online platforms. Many brokerages offer ETF screener tools that allow you to search for ETFs based on specific criteria, such as expense ratio.

These tools can be a big help in finding the best ETFs with low expense ratios. For example, you can use an ETF screener to search for ETFs with dividend yields greater than 2% and expense ratios below 1%.

You can also use online resources, such as the Kip ETF 20, which provides a list of the best cheap ETFs to buy. This list is designed to serve as a resource for investors who want to build a broadly diversified investment portfolio.

To get started, you can visit the website of a brokerage or online platform that offers ETFs. From there, you can use their ETF screener tool or search for specific ETFs that interest you.

Here are some online resources where you can find ETFs:

Remember to always do your research and read the prospectus before investing in any ETF.

The Fidelity Total Bond ETF (FBND) is a solid choice for investors looking for a core bond fund with low expense ratio. It has outpaced its peers in seven of the past nine calendar years, with below-average volatility.

This fund is actively managed, holding mostly medium-maturity U.S. government debt, corporate debt, and government-backed mortgage bonds. It also has the flexibility to invest up to 20% of its assets in lower-quality debt securities.

The Fidelity Total Bond ETF has a SEC yield of 5.2%, which is a standard measure for bond and preferred-stock funds. This means it has earned a 5.2% interest rate after deducting fund expenses for the most recent 30-day period.

Over the past 12 months, this fund gained 3.6%, outperforming the 2.6% climb in the Bloomberg U.S. Aggregate Bond index, a benchmark of high-quality U.S. debt.

The iShares Core S&P 500 ETF (IVV) is a great example of a low expense ratio ETF, with a cost of just 0.03%. This is one of the lowest expense ratios in the market.

You can find many other low expense ratio ETFs by using an ETF screener. For example, the Vanguard Tax-Exempt Bond ETF (VTEB) has an expense ratio of just 0.05%. The WisdomTree Global ex-US Quality Dividend Growth Fund (DNL) also has a low expense ratio of 0.42%, although it's worth noting that this fund has a higher expense ratio than some others.

Here are some popular low expense ratio ETFs:

These are just a few examples of low expense ratio ETFs. It's always a good idea to do your own research and compare the costs and benefits of different ETFs before making a decision.

The iShares Core S&P 500 ETF is a low-cost investment option with an expense ratio of 0.03%. This means you'll pay less in fees compared to other ETFs.

This ETF tracks the S&P 500 index, covering about 85% of the total stock market. It's a great way to invest in a broad range of stocks with minimal effort.

The fund's top holdings are the mega-cap firms Nvidia, Microsoft, Apple, Amazon.com, Meta Platforms, and Alphabet, which are all weighted by market value. These companies are household names and are likely to be part of your portfolio if you invest in the S&P 500.

A key advantage of this ETF is its low expense ratio, which is a fraction of what you'd pay with other investment options.

The iShares Core S&P Small-Cap ETF is a solid choice for investors looking for a low-expense ratio fund. It tracks the S&P SmallCap 600 index, which includes the smallest 6% of the total U.S. stock market.

Its top holdings include clothing retailer Abercrombie & Fitch, Fabrinet, and ATI.

This fund has a high-quality tilt, focusing on profitable firms with positive earnings for the most recent quarter and the sum of earnings for the most recent four quarters.

The iShares Core S&P Small-Cap ETF has a low expense ratio of 0.06%.

It's also worth noting that this fund has outpaced the Russell 2000 benchmark of small-company stocks in recent years, with strong performance over the past three, five, and 10-year periods.

The iShares MSCI USA ESG Select ETF is a popular choice among investors looking for a low expense ratio ETF. It has an expense ratio of just 0.25%.

This ETF tracks a 174-stock index that avoids certain businesses, including those involved in firearms, nuclear weapons, and tobacco. It's considered an "ESG-lite" fund, meaning it's not as strict on its environmental, social, and corporate governance criteria as some other ESG funds.

The fund's top holdings include large-cap stocks like Nvidia, Microsoft, and Apple. It also holds some energy stocks, such as ONEOK and SLB.

One thing to note is that the fund holds a few low-rated ESG firms, including 3M, which is rated as a "severe risk" by ESG data firm Sustainalytics.

The ETF has had its share of challenges, lagging the broad market in recent years. However, its five- and 10-year returns are still in line with the S&P 500.

The Vanguard Total International Stock ETF (VXUS) is an easy way to add international exposure to your portfolio. It holds about 8,500 foreign stocks, giving you a broad diversification.

This ETF is all-encompassing, holding shares in companies from developed markets, such as the U.K. and Japan, as well as emerging ones, like China and India. Emerging market stocks make up nearly 20% of the fund's assets.

Over the past 12 months, Vanguard Total International Stock gained 11.0%, which is a respectable return. If you're looking to add some international flavor to your portfolio, this ETF is a great option to consider.

Here are some key facts about the Vanguard Total International Stock ETF:

The Schwab U.S. Dividend Equity ETF (SCHD) is a popular choice among investors seeking a low-expense-ratio dividend fund. It has a 0.06% annual expense ratio, making it a cost-effective option.

Its dividend yield is 3.6%, which is double the yield of the S&P 500. This is due to the fund's focus on consistent payers with at least 10 years of dividends.

The fund's value tilt has dampened returns over the past year, resulting in a single-digit return. However, it has delivered solid results over the long haul, with a 0.8% annualized return over the past 10 years.

Texas Instruments (TXN), Amgen (AMGN), and Lockheed Martin (LMT) are top holdings in the fund. These companies are known for their strong financials and consistent dividend payments.

The fund's growth-and-quality tilt has helped returns in recent years, outperforming the MSCI ACWI ex USA index of stocks in foreign developed and developing countries.

The JPMorgan U.S. Quality Factor ETF (JQUA) is a strategic stock fund with a low expense ratio of 0.12%. It focuses on high-quality stocks that meet 10 quality criteria, including measures of profitability, financial risk, and earnings quality.

This fund has been a top performer, gaining 21.1% over the past 12 months, although it didn't quite beat the broad market. It's less volatile than the market, which can be a big plus for investors looking for stability.

The JPMorgan U.S. Quality Factor ETF holds 256 stocks, including well-known companies like Nvidia, Meta Platforms, and Alphabet. It's a great option for investors who want to invest in high-quality stocks with a relatively low expense ratio.