Cheapest ETF Portfolio Now Cheaper
With Charles Schwab cutting fees on its emerging market ETF, my ultra-low-cost ETF portfolio has gotten even cheaper.
With Charles Schwab cutting fees on its emerging market ETF, my ultra-low-cost ETF portfolio has gotten even cheaper.
Six years ago, I started tracking “The World’s Cheapest ETF Portfolio.” It was an aggressive portfolio holding the lowest-cost ETF in each of six asset categories:
- 40 percent Broad Market U.S. Equities
- 35 percent Foreign Equities
- 15 percent Fixed Income (broadly diversified)
- 5 percent REITs
- 5 percent Commodities
At the time, you could gain exposure to that portfolio for just 0.16 percent a year in annual fees. I thought that was pretty good. But over the years, it’s gotten cheaper and cheaper. And with Charles Schwab recently lowering the fee on its emerging market ETF, it has hit a new low.
You can now gain exposure to a diversified, broad-based portfolio for a blended fee of 0.086 percent. That means you pay $8.60 for every $10,000 invested.
It’s the cheapest diversified ETF portfolio in the world, and it looks like this:
| The World's Lowest Cost ETF Portfolio | ||||
| Asset Class | Weight | Fund | Ticker | Expense Ratio |
| U.S. Equity | 40% | Schwab U.S. Broad Equity ETF | SCHB | 0.04% |
| Developed Markets Equity | 30% | Schwab International Equity ETF | SCHF | 0.09% |
| Emerging Markets Equity | 5% | Schwab Emerging Markets Equity | SCHE | 0.14% |
| Fixed Income | 15% | Schwab U.S. Aggregate Bond | SCHZ | 0.05% |
| REITs | 5% | Schwab U.S. REIT ETF | SCHH | 0.07% |
| Commodities | 5% | UBS E-TRACS DJ-UBS Commodity TR ETN | DJCI | 0.50% |
| Blended Expense Ratio | 0.09% | |||
For 8.6 basis points, you get exposure to 3,776 stocks, 1390 bonds and 19 commodities, covering more than 40 countries and more than a dozen currencies. Aside from the commodities fund (DJCI | B-30), you can trade, rebalance and manage this portfolio, commission free, if you have a Schwab account. It’s one of the best deals in investing history.
If you want to replace DJCI with a commodities fund you can trade commission free, you can sub in the US Commodity Index Fund (USCI | A-47). Your blended expense ratio rises to 0.113 percent.
| Schwab Lowest-Cost ETF Portfolio | ||||
| Asset Class | Weight | Fund | Ticker | Expense Ratio |
| U.S. Equity | 40% | Schwab U.S. Broad Equity ETF | SCHB | 0.04% |
| Developed Markets Equity | 30% | Schwab International Equity ETF | SCHF | 0.09% |
| Emerging Markets Equity | 5% | Schwab Emerging Markets Equity | SCHE | 0.14% |
| Fixed Income | 15% | Schwab U.S. Aggregate Bond | SCHZ | 0.05% |
| REITs | 5% | Schwab U.S. REIT ETF | SCHH | 0.07% |
| Commodities | 5% | US Commodity Index Funds | USCI | 1.03% |
| Blended Expense Ratio | 0.11% | |||
Fidelity And TD Ameritrade Offerings
Not everyone has or wants a Schwab account, of course. The good news is, if you’re a customer of Fidelity or TD Ameritrade, you can build a very-low-cost commission-free ETF portfolio there too.
The Fidelity portfolio—capitalizing on Fidelity’s close relationship with iShares—comes in at just 0.13 percent in total expenses. The portfolio doesn’t have commodities exposure, as there are no commodity futures ETFs available commission-free at Fidelity. To balance that out, I’ve increased exposures to emerging markets and REITs.
| Fidelity Lowest-Cost ETF Portfolio | ||||
| Asset Class | Weight | Fund | Ticker | Expense Ratio |
| U.S. Equity | 40% | iShares Core S&P Total U.S. Stock Market | ITOT | 0.07% |
| Developed Markets Equity | 30% | iShares Core MSCI EAFE | IEFA | 0.14% |
| Emerging Markets Equity | 7.50% | iShares Core MSCI Emerging Markets | IEMG | 0.18% |
| Fixed Income | 15% | iShares Core Total U.S. Bond Market | AGG | 0.08% |
| REITs | 7.50% | iShares Dow Jones U.S. Real Estate Index | IYR | 0.46% |
| Commodities | 0% | – | – | 0% |
| Blended Expense Ratio | 0.13% | |||
TD Ameritrade comes in slightly more expensive, at 0.134 percent, with a blend of products from different issuers. Still, that’s a mighty good price.
| TD Ameritrade Lowest-Cost ETF Portfolio | ||||
| Asset Class | Weight | Fund | Ticker | Expense Ratio |
| U.S. Equity | 40% | Vanguard Total Stock Market Index | VTI | 0.05% |
| Developed Markets Equity | 30% | Vanguard FTSE Developed Markets ETF | VEA | 0.10% |
| Emerging Markets Equity | 5% | Vanguard Emerging Markets ETF | VWO | 0.18% |
| Fixed Income | 15% | iShares Core Total US Bond Market ETF | AGG | 0.08% |
| REITs | 5% | SPDR Dow Jones Global Real Estate | RWO | 0.50% |
| Commodities | 5% | iPath Dow Jones-UBS Commodity ETN | DJP | 0.75% |
| Blended Expense Ratio | 0.13% | |||
The truth is that all of these portfolios are phenomenally good deals. If you have an account at any of these firms, these are good starting points. I would note that these are not the best funds necessarily on each of these platforms, and that simply looking at headline expense ratio can be misleading.
Next week, I’ll explain exactly why, and show you the ETF portfolio providing the best value as opposed to the lowest-headline expense ratio.
At the time this article was written, the author owned the following securities: IEMG, AGG, VTI, VEA. Contact Matt Hougan at [email protected].
