ETF fee example
Each day, approximately 1 cent would be accrued ($4/365 days), and then deducted on a monthly basis, so after 12 months your investment would be worth around $9,996 (assuming no change in the market value of the fund holdings).
ETFs also incur an annual management cost, which is generally included in the unit price (the current market price of units in the fund). The management cost includes all relevant fees and costs associated with managing the ETF, including custodian fees, accounting fees, audit fees and index licence fees.
If you own shares of an exchange-traded fund (ETF), you may receive distributions in the form of dividends. These may be paid monthly or at some other interval, depending on the ETF. It's important to know that not all dividends are treated the same from a tax perspective.
ETFs can be sold short. These provisions are important to traders and speculators but of little interest to long-term investors. ETFs are priced continuously by the market, however, so there's the potential for trading to take place at a price other than the true NAV.
Many investors appreciate the benefits of being able to trade ETFs throughout the day at prices that are updated continually. For others, the concept of being able to buy and sell a fund throughout the day is something they are still getting comfortable with.
ETFs are not less safe than other types of investments, like stocks or bonds. In many ways, ETFs are actually safer, for instance thanks to their inherent diversification.
Every investment has a cost, even if you don't realise you're paying it. When you invest in an ETF or a managed fund, fees go to fund providers. They're a set cost, as an annual percentage and deducted automatically.
SPY is more expensive with a Total Expense Ratio (TER) of 0.0945%, versus 0.03% for VOO. SPY is up 28.31% year-to-date (YTD) with +$7.13B in YTD flows. VOO performs better with 28.36% YTD performance, and +$103.99B in YTD flows.
Brokerage, STT, and Other Charges
The average brokerage charge on purchasing ETFs is 0.01% of the turnover value. There are certain charges that the SEBI levies on the purchase of stocks from an exchange. Since ETFs also trade like stocks and are listed on the exchange, ETFs attract such charges from SEBI.
The 'Ongoing Charge' is a fee applicable to both Mutual Funds and Exchange Traded Funds. This figure, which is usually expressed as a percentage, is an indication of the cost an investor would incur over the year for investing in that fund or ETF.
Exchange-traded funds (ETFs) have embedded fees like the ones attached to mutual funds, and those fees are not tax deductible directly on your tax return.
Cost of an ETF compared to an active fund
You can find ETFs as low as 0.05% annual cost while banks sometimes dare to charge more than 2% on an annual basis for funds. You pay lower fees because index funds are very cheap to run. Tracking an index is simple. You buy the stocks in the index and update when it changes.
The Vanguard S&P 500 ETF has had a total return of 257% over the past decade. Another huge benefit of this particular ETF is that it has a very low expense-ratio fee of just 0.03%. That means if you invest $1,000, you'll pay just $0.30 in fees, and $10,000 invested in the fund will cost you only $3.
For most individual investors, ETFs represent an ideal type of asset with which to build a diversified portfolio. In addition, ETFs tend to have much lower expense ratios compared to actively managed funds, can be more tax-efficient, and offer the option to immediately reinvest dividends.
At the 2020 Berkshire Hathaway annual meeting, he said it simply: "In my view, for most people, the best thing to do is to own the S&P 500 index fund." The main reason Buffett likes index-tracking ETFs is that it's not easy to beat the market.
For example, you might buy SPY if you want to trade actively, or even venture into day trading, because of its high volume. You might consider buying VOO to hold over the long term because of its lower expenses.
Average Return
In the past year, QQQ returned a total of 25.74%, which is slightly higher than VOO's 24.33% return. Over the past 10 years, QQQ has had annualized average returns of 18.26% , compared to 13.04% for VOO. These numbers are adjusted for stock splits and include dividends.
Knowing the expense ratio will help an investor understand exactly how much money they will spend investing in an ETF fund annually. For example, if an investor puts $1,000 into an ETF that has an expense ratio of 0.2%, they will pay $20 in fees every year.
Due to their unique characteristics, many ETFs offer investors prospects to defer taxes until they are sold. In addition, as you approach the first anniversary of your purchase of the fund, you should consider selling those with losses before their first anniversary to take advantage of the short-term capital loss.
You may purchase and sell units at any time of day. An ETF's expense ratio is often lower than most traditional mutual funds (especially actively managed mutual funds).
At any given time, the spread on an ETF may be high, and the market price of shares may not correspond to the intraday value of the underlying securities. Those are not good times to transact business. Make sure you know what an ETF's current intraday value is as well as the market price of the shares before you buy.
ETFs may close due to lack of investor interest or poor returns. For investors, the easiest way to exit an ETF investment is to sell it on the open market. Liquidation of ETFs is strictly regulated; when an ETF closes, any remaining shareholders will receive a payout based on what they had invested in the ETF.