Falling ETF Costs

There's a pretty good article over at the Vanguard website on the different ways ETF costs are falling.  Besides falling expense ratios the article discusses two other ways costs are falling.  

For one thing higher volume in ETFS leads to lower spreads.  That is, the more trading a security has the lower the difference between a price an investor can sell and buy it.  An example is trying to buy security XYZ.  You might be able to buy it at 30 but if you turned around and had to sell it the price might be 29.99.  That difference is called the spread and it exists in any buy/purchase transaction, not just in financial markets.  Most major ETFs have spreads of only 1 cent, meaning the spread is basically nonexistent.  Even more thinly traded ETFs may now only have spreads of 3-5 cents.  

Also most major brokerages now offer trading for basically nothing.  When I started as a broker a 100 share equity transaction for say $35.00 would likely run you about $100 dollars.  Today you pay postage and handling.

Now neither of these last two may matter much to investors that buy and hold an ETF for any length of time but they do matter on the margin.

Anyway go read the article at the link and I'll be back sometime early next week.

Link:  Vanguard: "Exploring Falling ETF Costs"