Low-Cost ETF Portfolios You Can Create
How You Can Create a Low-Cost ETF Portfolio
Creating a low-cost ETF portfolio is an excellent way to build a diversified stock portfolio without paying a ton of fees.
However, you must understand how to choose the right ETFs to support your investing strategy and goals.
This article will cover everything you need to know about low-cost ETFs so you can easily invest in a diversified stock portfolio.
What is a Low-Cost ETF Portfolio?
A low-cost ETF portfolio is when you buy multiple ETFs with low expense ratios. Vanguard is notorious for providing some of the cheapest ETFs, making them an excellent choice for building a low-cost ETF portfolio.
The expense ratio of an ETF determines how much fees the fund managers take for managing the fund. Therefore, minimizing this expense ratio is critical when researching ETFs to buy.
While expense ratios may seem too small to make a difference, they can seriously hinder your portfolios' compounding ability.
Different Types of Low-Cost ETF Portfolios
Low-cost ETFs come in various shapes and sizes, meaning you have many options to research. For example, many ETFs allow you to invest in specific sectors or the overall market with a broad market ETF.
Investors can easily pick a few different ETFs and create a low-cost ETF portfolio with plenty of diversity. The ETFs you choose will ultimately depend on your investment goals and market thesis.
Choosing Low-Cost ETFs
An important factor to consider when picking an ETF is determining where your conviction lies. For example, if you are an avid dividend investor, you may want to opt for a dividend ETF rather than a broad market ETF.
On the other hand, if you want to take more risk, you can invest in a growth stock ETF. Regardless, your investment choice should always depend on what you believe is the best for your situation.
Low-Cost ETF Portfolio Example
If you are searching for an ETF investment, here are some of the best ETFs with low expense ratios you should research. Considering the expense ratios of ETFs, Vanguard’s funds are hard to beat.
Vanguard 500 Index Fund ETF ($VOO)
$VOO is one of the most popular ETFs because it tracks the overall market and has the lowest expense ratio of any currently available fund. This is an excellent fund if you want exposure to the overall U.S. equity market.
If you want to sell covered calls on your shares, then it would be better to trade a more liquid S&P 500 ETF such as $SPY. Otherwise, $VOO is great for long-term investors who don’t worry about options.
Expense ratio: 0.03%
Dividend yield: 1.63%
Holdings: S&P 500 Index
Vanguard High Dividend Yield ETF ($VYM)
$VYM gives you exposure to stocks with higher-than-average dividend yields. It is considered a large-cap value fund perfect for investors seeking consistent dividends and low volatility.
Expense ratio: 0.06%
Dividend yield: 2.93%
Holdings: FTSE High Dividend Yield Index
Vanguard Dividend Appreciation Index Fund ETF ($VIG)
$VIG is the one-stop shop for dividend growth investors, as it tracks companies that consistently increase their dividend payments each year.
Dividend growth is a sign of a reliable company because it shows they are confident in their free cash flow. Consistent cash flow allows these companies to withstand market corrections better and continue providing their investors with income to buy more shares.
Expense ratio: 0.06%
Dividend yield: 1.92%
Holdings: S&P U.S. Dividend Growers Index
Vanguard Information Technology Index Fund ETF ($VGT)
$VGT invests in information technology companies, making it more of a growth ETF. The expense ratio is the highest on the list at 0.10%, which is still low compared to most funds.
However, this fund has the potential to grow much more than dividend stocks. The dividend yield on growth companies is lower since it invests revenue into increasing its stock price rather than paying dividends.
Expense ratio: 0.10%
Dividend yield: 0.88%
Holdings: Information Technology Spliced Index
Vanguard Growth Index Fund ETF ($VUG)
$VUG is Vanguard’s standard large-cap growth ETF. The expense ratio is exceptionally low for a growth ETF at just 0.04%. Another example of a popular growth ETF that tracks the Nasdaq is $QQQ which has an expense ratio of 0.20%.
$VUG is an excellent choice for investors seeking exposure to large-cap growth stocks with a low expense ratio. Investors can also create a low-cost ETF portfolio by combining multiple ETFs.
Expense ratio: 0.04%
Dividend yield: 0.69%
Holdings: Spliced Growth Index
Low-Cost ETF Portfolios | Bottom Line
While picking individual stocks can provide excellent returns, sticking with low-cost ETF portfolios is a much safer investment route.
Additionally, ETFs are much more passive since stocks are automatically managed in the index, meaning you don’t have to worry about researching individual companies.
The only disadvantage with ETFs is the expense ratio, which is easily managed by researching the best low-cost ETF portfolios you can create.
Vanguard ETFs are generally the cheapest ETFs to invest in but are less liquid than optionable ETFs like $SPY and $QQQ. Options are great for people who wouldn’t mind selling some of their shares and want to collect some premium.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #073
