“A fund can have a low expense ratio but not ultimately outperform,” Christian Magoon, CEO of YieldShares said.
Operating expenses are another area investors must consider. Every trade that is executed costs the investor, so for those who trade frequently, an ETF can be expensive. The free-trade platform offered by Charles Schwab, Fidelity and TD Ameritrade are a cost-effective way to go. In fact, this feature alone is more valuable than a cheaper ETF that has higher operating costs.
Today, the average ETF costs 0.65% today, compared to the 0.56% charges in 2010, according to Morningstar data. Apparently, the higher costs niche or specialty ETFs are pushing the average higher even as large providers are cutting costs on large, broad-based ETFs. [Fee War Could Hit Specialty, Niche ETFs Next]
Tisha Guerrero contributed to this article.