David Fabian: The quest for ETF providers to offer the lowest fees and total expenses is without a doubt beneficial for index investors. Generally this involves dropping the expense ratios on competing ETFs to rock bottom levels in order to attract assets and attention to their funds.
On another front, Vanguard recently announced that they will be doing a reverse 2:1 share split on their widely held Vanguard S&P 500 ETF (VOO). This will essentially double the price of the fund on October 24th from its current level of $77 per share. The reason cited was to lower transaction costs for investors buying and selling VOO.
So what does this share split mean to you, the retail investor?
Virtually nothing. VOO is already a very heavily traded ETF with a tight bid/ask spread and economical expense ratio of just 0.05% annually. This change will likely only benefit institutional investors who are trading thousands of shares and millions of dollars daily. In addition, it will bring the price of VOO closer in line with its competitors in the SPDR S&P 500 ETF (SPY) and the iShares S&P 500 ETF (IVV) which both have slightly higher net expense ratios.
For the majority of investors, these are the most important characteristics to consider when constructing a low cost ETF portfolio.
1. Expense Ratio – ETF expenses can vary widely between competing providers and often times doing a little bit of homework can save you a boatload of money. One example of a significant fee disparity for a comparable ETF is the iShares Dow Jones US Real Estate ETF (IYR) vs. the Vanguard REIT ETF (VNQ). While the underlying holdings are quite similar, VNQ has the advantage of a miniscule 0.10% expense ratio as compared to 0.46% for IYR. Vanguard and Charles Schwab are leading the pack with the lowest cost ETFs in the industry.
2. Trading Fees – More and more brokerage companies are offering access to commission free ETF trades which can be a significant advantage in your total investment expenses. This is especially true for smaller accounts, where a trading fee as low as $8 to buy or sell can be cost prohibitive. Another advantage for commission free ETFs is that you can trade as often as you like and in whatever quantity you desire. This will allow you to scale in and out of positions with multiple orders or set stop losses and not worry about the impact of trading costs on smaller sized holdings.
3. Liquidity – I consider liquidity to be a “stealth cost” on an investment portfolio because it is easy to overlook. Often times ETFs that are thinly traded or have underlying holdings with low volume are at risk for scalping your hard earned money. This can occur when the bid/ask spread widens to abnormal levels or the market maker takes advantage of a drought in liquidity.(...)Click here to continue reading the original ETFDailyNews.com article: How To Build A Low Cost ETF PortfolioYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Press Release Service provided by PRConnect.
Stock quotes supplied by Telekurs USA
Postage Rates Bots go here