The 13 Basis Point Portfolio

By Matthew Hougan

My low-cost ETF portfolio just got cheaper.

As many of you know, I've been keeping track of just how low you can drive your expense ratio on a broadly diversified portfolio of ETFs. I published my first post about this in June, when my portfolio of low-cost ETFs had a blended expense ratio of 16 basis points (0.16%). That fee dropped to 15 basis points (0.15%) in July, as expense ratios came down on certain funds.The Wall Street Journal was kind enough to cover that portfolio in October.

Now, the portfolio has gotten even cheaper - down to 13.4 basis points - thanks to fee reductions on three Vanguard ETFs. Vanguard recently announced that it was lowering the expense ratio on its Emerging Markets ETF (VWO) from 0.30% to 0.25% and the expense ratios on its Europe (VGK) and Pacific (VPL) ETFs from 0.18% to 0.12%. With those changes, the portfolio now looks like this:

Asset Class	Weight	Fund	Ticker	ER
U.S. Stocks	40%	Vanguard Total Market	VTI	0.07%
European stocks	20%	Vanguard Europe	VGK	0.12%
Asian Stocks	10%	Vanguard Pacific	VPL	0.12%
Emerging Markets	5%	Vanguard Emerging Markets	VWO	0.25%
Fixed Income	15%	Vanguard Total Bond Market	BND	0.11%
REITs	5%	Vanguard REIT	VNQ	0.12%
Commodities	5%	iPath Dow Jones AIG Commodity ETN	DJP	0.70%
Blended Expense Ratio				0.134%

I'm not recommending this as the right portfolio for anyone, and I'm not saying that these are the best ETFs in their respective asset classes (although many of them are). But the portfolio makes an important point: You can now buy a diversified portfolio that includes everything from Emerging Markets stocks to commodities futures ... for 13.4 basis points.

That's amazing. And it is a testament to the benefits ETFs bring to investors.

Comments

[ikkyu]

That is amazing!
cheers,
john

[jamy]

Matt, but what about the trading expenses of putting on the proposed model portfolio? It would be nice to see not only the expense ratio, but also the associated trading expenses that are incurred when excecuting the proposed ETF model portfolio....All in costs to set up.

[User 86999]

That's a constant, regardless of what etf you choose, however, it becomes a variable if you ponder the depth of the portfolio, meaning the count of different etfs you choose to make up a portfolio.

[Brian Powers]

Matthew, great job. I am curious if you calculated the yield of this portfolio?

jamy, you could, for example, set up a Roth IRA with Zecco.com and pay no commissions. Then, you could rebalance at regular intervals (quarterly, yearly, etc.). The only drawback to Zecco is if you reinvest, they do not offer partial shares on equity positions. This may offer a very inexpensive way to invest for those just starting out with small balances.

I have no connection to Zecco other than using it myself for my Roth IRA.

[cheaptrade]

How about replacing DJP with IGE? I think it comes in even cheaper (0.48) and has returned better over past year.