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ETFs for Bogleheads
From Bogleheads
This article contains details specific to United States (US) investors. For non-US investors, acting on fund or ETF suggestions in it may have harmful US tax consequences.
Exchange-traded funds (ETFs) have become increasingly popular due to their low barrier to entry.[1] Major brokerages such as Fidelity, Schwab and Vanguard offer access to all ETFs without fees or investment minimums, resulting in a wide variety of choices for investors.[2] This article provides a comparison of core index ETFs for Boglehead-style investing.
When choosing between ETFs, it is important to consider the expense ratio (ER). This page offers a condensed menu of low-expense-ratio ETFs that investors commonly use as core holdings to build a passive — or "lazy" — portfolio. In each category, up to three low-cost, liquid ETFs are shown for comparison from several fund companies.[note 1]
Bloomberg Barclays Global Aggregate Float Adjusted Composite
8 yr
Notes
↑Liquidity or demand for a fund influences the price at which you buy and sell that fund on the market. This is known as the bid/ask spread. It should not impact your decision to buy and sell ETFs: the spread is usually small (~ 0.01%) for widely-traded ETFs. There are notes for certain categories where you might encounter larger spreads.
↑ 2.02.12.22.32.42.52.6The number of holdings an ETF has depends on how it tracks its index. An ETF can mirror the index by holding all its constituents: this is known as index replication. Alternatively, it may use sampling techniques: a smaller number of securities may be used to match the return of the index. This can increase the risk of tracking error. For investors, the number of holdings may also be useful for tax loss harvesting: it can be a significant differentiator if you ever need to make the case that a fund is not substantially identical to another. (See the fund's prospectus for exact numbers and details of holdings.)
↑ 3.03.13.2Index providers differ on what constitutes large, mid and small-cap. The oldest large-cap benchmark is the S&P 500, which covers 82% of the US stock market (as of July 2021); in comparison, the CRSP large-cap covers 85%.[3] A different definition, the top 70%, is used in Morningstar's style box; this is also known as "mega-cap" (per CRSP).[4] Morningstar also has a "large-mid" cap index that covers the top 90%.[4] For mid-cap stocks, providers usually carve out a distinct space in between large and small-caps. CRSP instead prefers an overlap: CRSP large-cap = CRSP mid-cap + CRSP mega-cap.[5] For small-caps, some common notions are the bottom 15% of the market (used by CRSP), the bottom 10% (used by Morningstar) and the bottom 5% (per the S&P 600 small-cap index, as of July 2021).[4][5]
↑ 4.04.14.24.34.4This category of ETFs has been less liquid than others, and you may see a large bid/ask spread. As an illustration of what the spread might look like, the following tables show the 60-day average spreads reported on Etf.com on July 1, 2021. Experienced investors should avoid trading these ETFs near market open/close, and to use limit orders. (New investors can safely ignore this information. This is a minor concern and should not influence your decision to trade.)
↑ 5.05.1Index providers differ on which countries are considered developed and emerging. FTSE and S&P classify South Korea as a developed market, while MSCI considers it an emerging market.[6] South Korea makes up about 5% of international market cap (as of July 2021).[3]
↑ 6.06.16.2 International large-cap can be obtained by combining developed large-cap (SCHF) and emerging markets large-cap (SCHE). A 75:25 ratio of SCHF and SCHE is equivalent to VEU, with a slightly lower ER (0.0725% vs 0.08%).[3] But consider that it may be simpler to use a single fund. You can synthesize developed markets by combining developed large-cap (SCHF) and small-cap (SCHC), but this has a higher ER than the single fund options.
↑There is currently no low-cost emerging small-cap ETF. The cheapest index fund is EWX (SPDR S&P Emerging Markets Small Cap ETF) with an ER of 0.65%.
This article contains details specific to United States (US) investors. For non-US investors, acting on fund or ETF suggestions in it may have harmful US tax consequences.