Fifteen Basis Points

July 30, 2007

Well, Jim, at least we can own the market cheap. My sample low-cost ETF portfolio can now be bought for less than fifteen basis points in expenses (0.148% to be exact).

That's down from more than sixteen basis points in late-June. The difference is the recent launch of the Vanguard Europe Pacific ETF (AMEX: VEA), which lowered the cost of access to the MSCI EAFE index from 0.35% to 0.15%.

As mentioned, this "low cost" portfolio is my way of keeping tabs on the state of the ETF industry. It follows a sample allocation that might fit an aggressive younger investor with a long time horizon. The fund positions, weights and costs are:

Asset Class

Weight

Fund

Ticker

ER

U.S. Stocks

40%

Vanguard Total Market

VTI

0.07%

Ex-U.S., Developed

30%

Vanguard Europe Pacific

VEA

0.15%

Emerging Markets

5%

Vanguard Emerging Markets

VWO

0.30%

Fixed-Income

15%

Vanguard Total Bond Market

BND

0.11%

REITs

5%

Vanguard REIT Index

VNQ

0.12%

Commodities

5%

iPath Dow Jones AIG Commodity ETN

DJP

0.75%

Blend it together and you get a net expense ratio of 0.148%. The fact that you can own such a well-diversified, balanced portfolio for less than 15 basis points (0.15%) is astounding to me. A few years ago, this would have cost a huge multiple of that. Buy that portfolio from a no-cost or low-cost brokerage account (or a portfolio-builder tool like FolioFn), rebalance annually and you're looking at a fairly sophisticated, diversified portfolio with minimal fees.

One obvious thing that jumps out about this portfolio is that Vanguard predominates. The reason, simply, is that Vanguard has staked out a position as the cost leader in the ETF space. That's not to say that Vanguard ETFs are the best choice for everyone - there are good reasons to choose other funds, including structure, service, etc. - but the company is doing yeoman's work putting pressure on the fee front.

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