Published on by on April 22, 2014

The following content is sponsored by Vanguard

ETF Portfolios Available Commission-Free at Vanguard

The ever-expanding ETF universe has made it easy for investors of all walks to construct well-diversified, cost-effective, portfolios spanning across previously difficult-to-reach corners of the global market. The evolution of the ETF industry has further democratized the investment landscape as a growing number of issuers are not only aggressively slashing management fees on existing products, but are offering funds entirely commission-free on some of the most popular online brokerage platforms. For smaller investors especially, minimizing expenses is key and a surefire way to boost your portfolio’s returns over the long-haul [see 101 ETF Lessons Every Financial Advisor Should Learn].

At first glance, the idea of commission-free trading might not seem all that enticing to long-term, “hands off” investors, but upon closer review it becomes apparent that cutting out those paltry trading fees can actually save you big bucks over time, even if you’re not an active trader. To illustrate the tremendous cost-efficiencies that commission-free trading can offer to long-term investors, consider the example below:

  • Let’s assume you contribute $1,000 every month to your retirement portfolio spread out across 5 ETFs over the course of 30 years and you’re able to generate 10% returns annually.

Now let’s compare two scenarios; in one instance, you incur a $10 commission fee every time you add to one of your five positions. This means that for every $1,000 monthly contribution you make, you are effectively paying $50 in commission fees alone, thereby bringing your net monthly investment down to $950 a month, or $11,400 a year. In another instance, let’s assume you are only utilizing commission-free ETFs available on your brokers platform, which means that your net monthly investments are simply $1,000 a month, or $12,000 a year [see also The Cheapest ETF for Every Investment Objective].

At the end of one year the difference between the two portfolios is fairly minimal; however, the cost-efficiencies of the commission-free portfolio are best showcased over the long-haul. As the chart below illustrates, over the course of 30 years, you may end up losing out on as much as $10,496 simply because of commission fees.

But can you develop a well-balanced all-ETF portfolio that maintains exposure to all the major asset classes, all the while relying only on commission-free funds available on your brokers platform? We examined all of the ETFs available commission-free to Vanguard account holders and came up with five simple, but effective, low-cost portfolios.

Looking for even more portfolio ideas? ETFdb Pro members have access to more than 50 All-ETF model portfolios; the lineup includes everything from sector-focused strategies, to regional ones, and even a host of retirement portfolios.

1. U.S. Total Market

This portfolio might work well for those who prefer to maintain a home-country bias when it comes to their equity and fixed-income investments:

Ticker Name Allocation
VOO S&P 500 ETF 50%
VO Mid-Cap ETF 20%
VB Small-Cap ETF 10%
BND Total Bond Market ETF 20%
  Portfolio Expense Ratio 0.08%

2. Go Global

This portfolio is intended for those who are looking to take a geographically-diversified approach while still keeping expenses to a minimum:

Ticker Name Allocation
VTI Total Stock Market ETF 50%
VEA Europe Pacific 20%
VWO Emerging Markets ETF 10%
BND Total Bond Market ETF 20%
  Portfolio Expense Ratio 0.09%

3. Dividend-Focused

This strategy should appeal to investors who are looking to generate meaningful current-income:

Ticker Name Allocation
VYM High Dividend Yield ETF 45%
VCLT Long-Term Corporate Bond Index Fund 10%
VMBS Mortgage-Backed Securities Index Fund 10%
  Portfolio Expense Ratio 0.10%

4. Aggressive

This strategy is geared towards investors with a stomach for volatility and a long-term horizon in mind:

Ticker Name Allocation
VOT Mid-Cap Growth ETF 35%
VBK Small-Cap Growth ETF 25%
VSS FTSE All-World ex-US Small Cap Index ETF 20%
VNQI Global ex-U.S. Real Estate Index Fund 20%
  Portfolio Expense Ratio 0.17%

5. Ready To Retire

This portfolio is bond-heavy and geared towards very conservative investors who wish to preserve capital and generate income:

Ticker Name Allocation
VIG Dividend Appreciation ETF 30%
VCSH Short-Term Corporate Bond Index Fund 30%
VGSH Short-Term Government Bond Index Fund 40%
  Portfolio Expense Ratio 0.12%