Building An Investment Portfolio With ETFs Just Got Even Cheaper

Here’s how to do it.

- Rob Curran

AS EXCHANGE-TRADED FUNDS gain more and more fans, brokerage firms are making it easier to use them as the main building blocks of a retirement portfolio. Just beware of the potential pitfalls.

Earlier this year discount brokerage Charles Schwab doubled the number of exchange-traded funds that could be traded for free on its online platform, and rival Fidelity Investments responded with a similar offer. As a result, investors can now buy and sell thousands of ETFs without paying regular commissions.

ETFs, which after years of explosive growth hold more than $3 trillion, are mutual funds that trade throughout the day like a stock. Most ETFs are index funds, meaning they track market benchmarks and boast relatively low investment fees. While there are plenty of similarities between ETFs and traditional index mutual funds, ETFs do offer some advantages, like de minimis investment minimums (in theory you can buy just one share) and certain tax advantages when it comes to capital gains.

Low-cost ETFs can be like a “Swiss Army knife” for investors, says Ben Johnson, director of passive funds research at Morningstar. “They can do a lot of different jobs for a lot of different people.”

Is building a portfolio with ETFs the right approach for you?

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