Do you know all the costs involved with investing in, buying, and owning an ETF? Learn how to choose low-cost ETFs that work for you.
Are ETFs, or “exchanged-traded funds,” always low-cost? Generally speaking, yes—but it’s a bit more nuanced than that. Let’s take a closer look at the costs to invest in, buy, and own an ETF.
The cost to invest in an ETF is the price of one share, which could vary—from as low as $50 to as high as a few hundred dollars—depending on the ETF. In return, you get an ETF that could hold tens, hundreds, or even thousands of stocks or bonds.
Compare that to investing in individual stocks or bonds on your own: You’d have to buy those shares separately to get an equally diversified portfolio—that would add up fast. Or, compare the price of an ETF to the cost to invest in a mutual fund, which could have a minimum of $1,000 to $3,000 or more. All in all, the cost to invest in an ETF can be much more affordable.
Then there’s the cost to buy an ETF—the commission. That’s the transaction fee you pay every time you buy or sell.
With ETFs, it’s one trade, one commission. Compare that again to buying stocks and bonds separately, paying a commission for every trade—it really does add up quick. Once again, ETFs can be more affordable.
Even better? You won’t pay any commissions when you trade Vanguard ETFs® through a Vanguard Brokerage Account.
Finally, there’s the cost to own an ETF. It’s important to consider each ETF’s expense ratio, which represents its operating costs, shown as a percentage of the ETF’s average net assets.
You’ll often hear that ETFs have lower expense ratios because they’re index investments, which means they try to track a specific index, like the S&P 500®. While that’s true for most ETFs, not all of them are indexed. Some are actively managed, so you may pay more for a professional fund manager to hand-pick the stocks and bonds that make up the ETF.
Plus, some ETFs can have higher expense ratios, whether they’re indexed or actively managed—for example, when investing in a specific industry, such as health care, or internationally, especially in developing countries.
That’s why it’s too simple to say, “ETFs are always low-cost.” And why it’s more accurate to compare product-to-product, one ETF to another. And why it’s so important to know all the costs involved with ETFs.
To learn more, visit vanguard.com/etfcosts.
You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules on vanguard.com for limits. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.
All investing is subject to risk, including the possible loss of the money you invest.
Costs are only one factor to consider when making investment decisions. There may be other material differences between investment products that must be considered prior to investing. For example, investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issued by companies in foreign countries or regions; and currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates. These risks are especially high in emerging markets. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.
© 2017 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor of the Vanguard Funds.