Comments on: How to Choose ETFs for Your Portfolio

By: Monevator

Monevator — Sat, 23 Jan 2010 12:04:58 +0000

We can only dream of those low total expense ratios here in Europe. The lowest from memory that retail investors can access is the Fidelity Moneybuilder, but even that has a TER of 0.2% if I recall correctly.

By: Mike

Mike — Sat, 23 Jan 2010 02:51:57 +0000

Daddy Paul: Large-cap domestic stock ETFs typically have low expense ratios (though they’re not all as low as these 4). In other categories, expense ratios can be much higher. For example, many emerging markets ETFs or sector-specific ETFs have expense ratios close to 1%.

By: Daddy Paul

Daddy Paul — Sat, 23 Jan 2010 00:26:33 +0000

Mike
All of the funds listed have low expenses. Just how high are some expenses on some ETF’s?

By: Mike

Mike — Wed, 20 Jan 2010 03:34:15 +0000

Hi Meghan.

The spread is simply the difference between the “bid” and the “ask” if you look up a ticker symbol online. For example, looking up IVV on Yahoo Finance shows us that (at the moment) the bid is $115.41, and the ask is $115.51, thereby making the spread $0.10.

But when comparing ETFs, it’s more meaningful to look at the spread as a percentage of the total price rather than as a dollar amount. So for the moment, the spread would be 0.087% of the ask price.

By: Meghan

Meghan — Wed, 20 Jan 2010 02:43:33 +0000

Hi Mike,

This is a very useful post. I’m wondering, how do you calculate the bid/ask spread? This is something that I find tends to be ignored in articles on ETFs.

By: Mike

Mike — Tue, 19 Jan 2010 00:53:04 +0000

Capt. Mike:

The spread won’t always be as small as it happens to be with these 4 particular ETFs, so it’s worth at least looking into beforehand. But you’re absolutely correct in that, if you’re investing for an extended period of time, it certainly has smaller impact than, say, the expense ratio.

By: Capt. Mike

Capt. Mike — Tue, 19 Jan 2010 00:24:11 +0000

Hi Mike,
Good article. I guess I dont understand the importance of the small bid/ask spread. If you are investing for the long haul, not trading the ETF and having dividends reinvested why does bid/ask spread matter?
Kind regards, Mike

By: RetirementInvestingToday

RetirementInvestingToday — Mon, 18 Jan 2010 21:09:47 +0000

I’m always impressed by how low the Expense Ratios are for ETF’s in the US. Here in the UK we are being continually ripped off.

You give the example of IVV having an expense ratio of 0.09%. Here in the UK the iShares equivalent, a basic FTSE 100 ETF, has an expense ratio (TER) of 0.4%!

By: Mike

Mike — Mon, 18 Jan 2010 18:34:24 +0000

“Can a fund company increase the spread artificially as sort of a hidden load?”

To the best of my knowledge, no. My understanding is that the spread doesn’t go to the fund company but rather to the party that executes the transaction.

By: Rick Francis

Rick Francis — Mon, 18 Jan 2010 17:09:37 +0000

Mike,

Thanks for outlining your selection process- I have to admit that I’ve tended to ignore the bid/ask spread as a factor but it could be a tie breaker between two funds.
I found vanguard’s summary for their funds:
https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/bidaskspread
I know it should be related to the trading volume and frequently traded stocks have a lower spread.
Can a fund company increase the spread artificially as sort of a hidden load?

-Rick Francis