For example, an expense ratio of 0.20% means every $10,000 invested would cost $20 annually. Is that high or low? For ETFs tracking a popular broad index like the S&P500, a 0.20% annual charge would be considered a bit high. For a more specialized ETF (say a health care ETF), it would be considered low.
If you plan to invest for the long term, a very high expense ratio (1% or more) will be a constant drag on your performance due to the compounding effect.
If you compare ETFs that track the same underlying securities or index, it rarely makes sense to go with the one having a larger expense ratio.
ETF currency
The underlying securities and the currency of the ETF do not need to be the same. It might make sense for you to go for a local currency ETF if converting your currency would incur charges. For example, there are ETFs designed for UK investors that are denominated in GBP and track US indexes.
Trading volume
You might prefer an ETF that has a higher liquidity, trades on a major exchange and has a large daily trading volume, therefore has a smaller bid-ask spread.
Tax domicile of the ETF
Some ETFs domiciled in the US might not be available to EU citizens.
Non-US citizens might favor non-US-domiciled ETFs for other reasons as well, e.g. avoidance of US estate taxes and/or favorable treatment of withholding taxes.
For example, UK investors can be exempt from withholding tax in certain cases on the income they receive from ETFs domiciled in Ireland and Luxembourg.
Dividend and interest treatment
So-called accumulating ETFs automatically reinvest income (like dividends paid) back into the underlying index with no cost. They can save you money on transaction costs if you were to do the same anyway.
On the other hand, you might prefer so-called distributing ETFs, if you rely on the income your ETF pays periodically.
What else do you need to know about ETFs?
Want to learn more before deciding which the best ETF is for you? Check out these articles to deepen your knowledge:
- What is the difference between mutual funds and ETFs?
- What does an ETF portfolio mean?
- How to invest in ETFs?
- How to buy Vanguard ETFs?
- How to buy iShares ETFs?
- What are sector ETFs?
- What is passive investment?
- Are US ETFs only available for US residents?
- What is an ETF expense ratio?
- What is a currency ETF?
- How to invest in Metaverse ETFs?