Be thankful for lower fees. This Thanksgiving season every investor should be giving thanks for this wonderful world of exchange-traded funds. That’s because the rise of ETFs and cost competition from fund managers has resulted…
Be thankful for lower fees.
This Thanksgiving season every investor should be giving thanks for this wonderful world of exchange-traded funds. That’s because the rise of ETFs and cost competition from fund managers has resulted in a race to the bottom on fees and a wide variety of instruments at your disposal. That means a small-time investor in 2018 can access strategies that once were only available to the very rich — and at a fraction of the cost. Here are seven ETFs that exemplify this low-cost revolution. The most costly of the group charges a mere 0.15 percent, or $15 annually for every $10,000 invested. That’s a cost structure we should all cheer.
Low-cost leader Vanguard is a great place to find some of the cheapest funds on Wall Street. Its Total Stock Market ETF is a great example of this, with one of the lowest expense ratios. VTI gives your portfolio exposure to the entire U.S. stock market across large-, mid- and small-cap companies. The fund is benchmarked to the CRSP US Total Market Index comprised of more than 3,600 stocks, so it is a broad-based fund. Just be aware that giants like Apple (AAPL) and Johnson & Johnson (JNJ) do represent an outsized share; the top 10 holdings represent about 19 percent of the total portfolio right now.
The S&P 500 is one of the most widely known U.S. stock market benchmarks, made up of the top 500 companies in the nation by market capitalization. That means big names such as Exxon Mobil Corp. (XOM) and Amazon.com (AMZN). There are a bunch of other S&P 500 funds, but IVV has many beat on price and structure. Its expense ratio is at the very bottom of the marketplace, and IVV is not structured as a trust like other S&P 500 funds, such as the well-known SPDR S&P 500 ETF Trust (SPY). That allows IVV to stay closer to the benchmark.
Some investors think that it’s only big funds like these that offer rock-bottom expenses, but Charles Schwab proves them wrong with this slightly more tactical and lesser-known offering that is just as competitive on price. Many investors like small-cap stocks because they are a bit more volatile and growth names here can deliver larger returns. Others prefer smaller U.S. corporations now because they are domestically focused and avoid the international trade tensions that pose a risk to multinationals. But whatever your reason for thinking small, SCHA has you covered with this ETF that holds 1,700 small- and mid-cap U.S. stocks.
Small stocks aren’t the only way to seek out more growth in your portfolio. This iShares fund focuses on large- and mid-cap companies and is a “factor” focused fund that applies quantitative analysis to seek out “stocks exhibiting relatively higher momentum characteristics.” That means MTUM is biased toward technology stocks with about 41 percent of the portfolio in this sector. But if you are more interested with leaning toward growth, this fund offers a way to tap into more potential than the typical large-cap stock fund — and at a bargain price.
The flip side of going for picks that feature a bit more risk and a bit more reward is to look for stability. And if you want stability, commonly that means seeking out entrenched blue-chip stocks that pay reliable dividends. That kind of stability is what SCHD offers, by a strategy that only invests in stocks with a history of at least 10 years of dividend payments and other qualitative measures to ensure you’re not just chasing yield without getting reliability. The portfolio is focused at just about 100 stocks now, including popular names like Intel Corp. (INTC) and Pfizer (PFE) that collectively deliver a yield of about 3 percent.
As the ticker symbol implies, this is an “ex-U.S.” fund that allows investors to access global equities markets excluding American companies. That makes this a powerful way to achieve true diversification. With nearly 6,400 stocks, this ETF is very diversified across individual names. It is also diversified across geography with about 20 percent of its portfolio in emerging markets, 40 percent in Europe and 30 percent in the Pacific. If you want to bolt on geographic exposure outside America, this is an affordable way to do that with a single fund.
Beyond stocks, this low-cost bond fund is worth a look by investors wanting a more conservative bent to their portfolio. BNDX is comprised of a wide swath of the bond market that includes government debt from the U.S., Japan and Germany, as well as investment grade corporate debt. There’s no junk here, just high-quality offerings from the safest companies and governments. Maturities aren’t terribly long either, with the average effective maturity now at 9.1 years, which also lowers the potential risk of the holdings. The present yield isn’t tremendous at about 1.1 percent, but the expenses are dirt cheap if you want a rock-solid portfolio foundation.