ETF Investing Guide: ETFs Are Cheaper Than Index Mutual Funds

by: David Jackson

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

(1) Tracks (NYSE:MSCI) & (EAFE)

ETF Investing Guide Main Page
Previous: The Seven Advantages of ETFs Over Index Mutual Funds
Next: The Single (But Serious) Disadvantage of ETFs