ETF Investing Guide: ETFs Are Cheaper Than Index Mutual Funds

The advantages of ETFs seem so compelling that even Vanguard, the largest index mutual fund company that perhaps has most to lose from ETFs, is now offering them itself.

Why? Perhaps one reason is that annual expenses for ETFs are now lower than for Vanguard Index Funds, as the table below shows.







An ETF Portfolio vs Equivalent Vanguard Funds: 18% Lower Expenses (0.21% vs 0.26% total portfolio expenses)

ETF Ticker	Expense Ratio	Equivalent Vanguard Fund	Expense Ratio	Sample Asset Allocation	Weighted ETF Expense	Weighted Vanguard Expense
(IVV)	0.09%	500 Index Fund Investor Shares (VFINX)	0.18%	35%	0.03%	0.06%
(IJH)	0.20%	Mid-Cap Index Fund Investor Shares (VIMSX)	0.26%	10%	0.02%	0.03%
(IWM)	0.20%	Small-Cap Index Fund Investor Shares (NAESX)	0.27%	5%	0.01%	0.01%
(EFA)	0.35%	Developed Markets Index Fund (VDMIX) (1)	0.35%	20%	0.07%	0.07%
(EEM)	0.75%	Emerging Markets Stock Index Fund (VEIEX)	0.57%	5%	0.04%	0.03%
(SHY)	0.15%	Short-Term Bond Index Fund Investor Shares (VBISX)	0.21%	10%	0.02%	0.02%
(IEF)	0.15%	Intermediate-Term Bond Index Fund Investor Shares (VBIIX)	0.21%	5%	0.01%	0.01%
(TLT)	0.15%	Long-Term Bond Index Fund (VBLTX)	0.21%	5%	0.01%	0.01%
(RWR)	0.25%	REIT Index Fund Investor Shares (VGSIX)	0.27%	5%	0.01%	0.01%
		Total Portfolio		100%	0.21%	0.26%

(1) Tracks (MSCI) & (EAFE)

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Comments

[Nidhi]

ETFs have many more advantages over Mutual Funds that are not discussed much. You can find more on them here:

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