Nobody wants to spend money they don’t have to — especially this time of year and during a pandemic. And cheap ETFs that track the S&P 500 and more are a place where saving pennies can add up to serious money.
Thanks to a raging price war for exchange-traded funds and notes, you can now choose from 16 funds that charge nothing or virtually nothing. ETFs like SoFi Select 500 (SFY), iPath Gold ETN (GBUG) plus iShares Core S&P 500 (IVV) and Vanguard Total Stock Market (VTI) offer annual fees of 0.03% or less. Six of those funds are completely free.
Don’t overlook how much money lowering investment fees will save you. You can save up to $112,177 over 30 years if you find a way to pay less than 0.53% charged by the average ETF, says Bankrate. That’s based on an initial $100,000 portfolio that gets a 7% average annual return.
“The most amazing thing about this list is how good most of these (ultra low cost) funds are. It’s best-in-breed from the big indexers,” said Dave Nadig, director of research at ETFTrends.com. “You could build an incredible portfolio for the long haul using just the funds on this list.”
Cheap Stock ETFs Exist: S&P 500 And Beyond
Newer, smaller or more aggressive providers are pushing ETF fees down. But the industry is following.
SoFi, a bank and brokerage, is behind many of the lowest cost ETFs you can find. Its SoFi Select 500 and SoFi Next 500 (SFYX) are among the handful of ETFs with no management fee at all. The SoFi Select 500 attempts to one-up popular index-based ETFs that track the S&P 500.
Rather than just owning the 500 largest U.S. stocks and weighting them by value, this ETF adjusts weightings based on revenue and earnings growth, too. And this year, SoFi’s spin on the S&P 500 is paying off as the ETF is up roughly 23%, topping the S&P 500’s 16% return.
The $140 million in assets fund has nowhere near the $325 billion plowed into the grandaddy ETF: SPDR S&P 500 ETF (SPY). But it’s also 0.09% cheaper. The SPDR’s provider, too, offers a lower cost version called SPDR Portfolio S&P 500 ETF (SPLG), which charges a scant 0.03% annually. And iShares Core S&P 500 already grabbed $236 billion in assets with its tiny 0.03% expense ratio.
Aggressive providers, too, are taking on more than just the big U.S. stocks. BNY Mellon Core Bond launched this year with a buy-and-forget diversified bond portfolio with no expense ratio. It’s still small with $56 million in assets. But it’s undercutting the seemingly cheap 0.04% bond index king with $67 billion in assets: Vanguard Total Bond Market (BND). And if the yellow metal is your thing, the iPath Gold ETN charges nothing, while the $70 billion-in-asset SPDR Gold Shares (GLD) charges 0.4%.
Should You Shift To Cheap Stock ETFs To Save Money?
If you’re paying more for an ETF, should you move your money? Here’s an easy rule of thumb, says Todd Rosenbluth, head of ETF and mutual fund research at CFRA. Don’t sell your existing ETFs if you just paying 0.02% more. Any savings will likely be wiped out by the capital gains tax you trigger, he says.
But if you have a capital loss or are paying much more, look for smart savings, he says. But make sure the ETFs are equivalent first. Sofi Select 500, for instance, is more tilted to growth than the S&P 500.
Investors should ask themselves, ‘if I’m paying more than this, what am I getting?'” Nadig said. If it’s unique asset class or angle, it might be worth paying for. You won’t find many people complaining about paying 0.75% for Ark Innovation (ARKK), as it’s up more than 47% annualized the past five years. That more than covers the fee, as the S&P 500 is up just 14.7% during that time.
Liquidity, too, can be worth something if you trade frequently. The difference from what investors pay and sell shares of SoFi Select 500 for is wide for an ETF: 0.22%. It’s just 0.02% with SPDR’s low cost S&P 500 version. It could be cheaper to pay the 0.03% expense ratio.
Not Just S&P 500: Brace For More Cheap Stock ETFs
You’d think with ETFs charging just 0.03%, the price war for cheap stock ETFs is over. Not so, says Rosenbluth. He thinks more sub-0.04% fee ETFs are coming. iShares teamed with Morningstar this month to modify nine ETFs tracking small and mid-sized companies, too. Expense ratios are yet to be announced, but Rosenbluth thinks they’ll be much closer to 0.03% than the 0.25% charged now.
The direction is down for ETF fees. Investors continue to gravitate to funds charging 0.04% or less, Rosenbluth says. He sees Charles Schwab (SCHW), Vanguard and State Street looking to lower fees. “While investors should go beyond a fund’s expense
ratio in sorting through the ETF universe, we believe cost remains a key factor when building asset allocation portfolios,” Rosenbluth says.
Cheapest ETFs You Can Buy
Price wars are driving fees to zero
|Name||Ticker||Adjusted Expense Ratio||Total Return Year-To-Date||Net Assets ($ Millions)|
|SoFi Select 500||(SFY)||0.00%||23.2%||$140.3|
|BNY Mellon US Large Cap Core Equity||(BKLC)||0.00||N/A*||122.9|
|BNY Mellon Core Bond||(BKAG)||0.00||N/A*||55.6|
|iPath Gold ETN||(GBUG)||0.00||21.1||41.9|
|SoFi Next 500||(SFYX)||0.00||18.5||18.7|
|iPath Silver ETN||(SBUG)||0.00||39.1||14.7|
|JPMorgan BetaBuilders US Equity||(BBUS)||0.02||18.4||267.8|
|iShares Core S&P 500||(IVV)||0.03||16.2||236,426|
|Vanguard Total Stock Market||(VTI)||0.03||19.6||199,571|
|Vanguard S&P 500||(VOO)||0.03||16.2||173,895|
|iShares Core S&P Total US Stock Mkt||(ITOT)||0.03||19.3||31,756|
|Schwab US Large-Cap||(SCHX)||0.03||19.2||25,219|
|Schwab US Broad Market||(SCHB)||0.03||19.4||17,871|
|SPDR Portfolio S&P 500||(SPLG)||0.03||16.5||7,705|
|SPDR Port S&P 1500 Comps Stk Mkt||(SPTM)||0.03||16.1||4,199|
|iShares 0-3 Month Treasury Bond||(SGOV)||0.03||N/A*||870|