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The Race to Zero: What ETF Investors Need to Know

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ETF investors are becoming increasingly cost conscious. So in order to attract investors, ETF providers have also been aggressively cutting fees.

Last month, Charles Schwab (SCHW) and Interactive  Brokers (IBKR) announced they would offer zero commission trading on stocks & ETFs,  which was followed by similar moves by  TD Ameritrade (AMTD), Fidelity, E*Trade (ETFC) and Ally Invest.

Investors should not let zero commissions dictate their trading behavior since there are other costs involved in trading.

Five exchange traded products now have zero or negative fees. The Salt Low TruBeta US Market ETF (LSLT), SoFi Select 500 ETF (SFY) and SoFi Next 500 ETF (SFYX) have waived their fees for the first year, making them free to investors. The iPath Gold ETN (GBUG) and iPath Silver ETN (SBUG) are the first zero fee ETNs.

While costs matter a lot, the difference becomes insignificant when it comes to a few basis points. And expense ratios are not the only factor that investors should consider while selecting ETFs. They should also look at trading costs and other implicit costs.

Ultra-cheap, highly-liquid, broad market ETFs like the iShares Core S&P Total U.S. Stock Market ETF (ITOT) and Vanguard S&P 500 ETF (VOO) that charge just three basis points each, are as good as free ETFs. Top holdings in these ETFs include Microsoft (MSFT), Apple (AAPL) and Amazon (AMZN - Free Report) .

To learn more, please watch the short video above.

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