That brings us to expense ratios. State Street charges an expense ratio of 0. If only it were that simple. You might have to wait a few hours to be completely liquid, rather than a few minutes. Furthermore, even a 0. Granted, the latter category consists of funds that require some degree of active management , as opposed to just tracking the stocks that make up an index whose components are selected by a third party.
State Street thus must keep all the shares it purchases in-house. Five hundred stocks in a portfolio mean several hundred dividend payments, too. Rather than deliver those dividends to investors all year long, which would be more than a little cumbersome, SPDR holds the dividend payments in cash and doles them out upon distribution.
Meanwhile, Vanguard invests its daily cash in its own ultra-low-risk investment vehicles. Yahoo Finance. State Street Global Advisors. Top ETFs. Dividend Stocks. Actively scan device characteristics for identification.
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Sweta Killa. April 9, , PM. Recommended Stories. Motley Fool. Yahoo Finance. Most people only look at a fund's expense ratio when considering cost, but you really need to look the expense ratio and trading spread together. One is the cost of fund management and the other is the cost of trading shares. Both come directly out of your pocket. Let's start by taking a look at just the expense ratio of all three of these ETFs side by side.
SPY is the biggest of the bunch and charges 0. In the grand scheme of things, 6 basis points per year isn't going to move the needle in any major way. Unless you're investing hundreds of thousands of dollars or more, the difference is probably negligible. Still, if you're starting out from scratch and trying to decide which one to open up a new retirement account with, for example, there's no reason why you probably shouldn't choose the lower cost VOO or IVV.
After all, if you can grab a little more in total return, why wouldn't you? But, again, the expense ratio is only one part of the equation. In reality, your trading behavior is going to do more to influence which of these funds may be better for you than the expense ratio alone. The first thing I notice when looking at this graphic isn't the average spread. It's the average daily volume. Why such a difference? Reputation is one factor.
The bigger factor is liquidity.
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