Here's How Investors Are Winning the ETF Fee War

Vanguard recently chopped fees on more than 50 ETFs, including popular products such as the Vanguard FTSE Developed Markets ETF (VEA) and the Vanguard Dividend Appreciation ETF (VIG). In announcing the fee reductions, Vanguard quoted its legendary founder Jack Bogle: “In investing, realize that you get what you don’t pay for.”

While Vanguard has long championed this message, it remains a timely reminder especially as newer exchange-traded funds in recent years have become significantly more expensive and exotic. It also underscores the point that while crypto and leveraged single-stock ETFs dominate headlines, the ETF fee war is never over. It continues to quietly and ruthlessly unfold in the industry’s background.

When taking a step back, it’s remarkable to consider the impact of this long-brewing fee battle. Investors can now access a broad range of asset classes for 0.03% or less—including the S&P 500, S&P 400 midcaps, S&P 600 small caps, total U.S. stock market, developed international stocks, U.S. aggregate bonds, all flavors of Treasuries and corporate bonds, mortgage-backed securities, high yield bonds, municipal bonds—the list goes on.

There are even bitcoin and Ethereum ETFs that currently come with no cost at all, thanks to fee waivers.

When broadening the list of ETFs to those costing 0.10% or less, the universe expands to include sector ETFs, single-country ETFs, gold, and even actively managed strategies. There’s really not much investors can’t do at this price point. A well-crafted, globally diversified portfolio can be built for the cost of a cheap dinner.

ETF Fees and the Cost of Ownership

Obviously, expense ratios are just one component of the total cost of ownership. Investors must also consider factors such as trading costs and tracking error. Additionally, portfolio construction should begin with selecting the right asset classes, not merely opting for the cheapest ETFs. 

However, as Vanguard pointed out, “Lower costs leave more money in investors’ funds and raise their potential returns.” The math here is pretty simple. Over time, lower fees compound, allowing investors to keep more of their returns. And the reality is that the vast majority of asset classes a successful investor needs are now available at rock-bottom prices.

Vanguard’s fee reductions are simply the latest salvo in a long-standing battle for investor dollars. Investors naturally gravitate toward where their money is treated best, and fees are a key factor in that decision. 

Don’t expect other issuers to sit by idly—the fierce competition within the ETF industry guarantees that fees will continue to grind even lower. Ultimately, the true winner is the investor, who continues to reap the rewards of the ongoing ETF fee war.