Assessing the Total Cost of ETF Ownership
The total cost of owning an ETF may vary widely on a fund-by-fund and investor-by-investor basis.
A version of this article was published in the February 2017 issue of Morningstar ETFInvestor. Download a complimentary copy of ETFInvestor here.
Exchange-traded funds have become the investment wrapper of choice for a growing number of investors ranging from institutions to individuals. Transparency, tradability, tax efficiency, and low costs are the trademarks of the ETF package. Fees in particular are a critical input in investors' ETF selection process. But when it comes to choosing an ETF--particularly when picking among funds tracking identical or substantially similar benchmarks--it's important to look beyond the headline fee and take a more holistic approach to assessing the total cost of ETF ownership. Here I will outline the components of the total cost of owning an ETF, address how to size them, and discuss how their relative importance varies depending on an investor's circumstances.
Ben Johnson has a position in the following securities mentioned above: VOO. Find out about Morningstar’s editorial policies.