The tax cost ratio, or a measure of how much taxes one pays on distributions, can also eat away at over all returns. Investors should try to find ETFs with low tax cost ratios, and data providers like Morningstar provide the stats at gratis.
With these factors in mind, investors have a number of low-cost ETF options to fill out an investment portfolio.
For U.S. stock exposure, the Schwab U.S. Broad Market ETF (NYSEArca: SCHB), which tracks a diversified group of 2,000 U.S. stocks across asset categories, comes with a 1.75% yield, a 0.04% expense ratio and a three-year tax cost ratio of 0.76. Additionally, the Vanguard S&P 500 ETF (NYSEArca: VOO), which tracks the S&P 500 index, has a 1.68% yield, a 0.17% expense ratio and a 0.49 three-year tax cost ratio. [Total Stock ETFs: A One-Stop Investment for Portfolio Diversification]
Looking at overseas markets, the Vanguard Total International Stock ETF (NYSEArca: VXUS), which follows broad developed and emerging market stocks, has a 3% yield, a 0.22% expense ratio and a 1.01 three-year tax cost ratio. Moreover, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) targets the emerging markets and comes with a 1.57% yield, a 0.67% expense ratio and a 0.46 three-year tax cost ratio.
For more information on taxes, visit our taxes category.
Max Chen contributed to this article.