Thanks to the price war that's going on among discount brokers, investors now have unprecedented access to commission-free ETFs. Although some may see unlimited free trades as an open invitation to day-traders and other active trading strategies, those who want to put together a winning portfolio little by little can now do so without losing too much money to transaction costs.

Making the most of free ETFs
Vanguard upped the ante in the broker wars earlier this month by opening its entire lineup of 46 ETFs to its brokerage clients. As long as you have a Vanguard brokerage account, you can buy and sell shares of any Vanguard ETF with no commission.

The most important thing those free commissions do is to give investors a chance to make regular additions to their ETF holdings without having to worry about transaction costs. Before the move, when online ETF trades cost $5 to $10 a piece, the idea of taking $50 or $100 out of your paycheck every two weeks and investing it in ETFs was ridiculous; the commissions involved would eat up a huge portion of your investment, making it much preferable to use traditional mutual funds that don't impose such fees.

Of course, mutual funds are still available, and are a smart bet for many investors. But with Vanguard funds, you can sometimes enjoy lower costs by going with the ETF than with a similar mutual fund, especially if you're a small investor using regular investor-class shares. Vanguard ETFs effectively treat you like an institutional investor even if you have a modest portfolio.

So with all that as background, what's the best way for ordinary investors to create a diversified portfolio using solely Vanguard ETFs? Here's one possible lineup:

1. Vanguard Total Stock Market ETF (NYSE: VTI)
Vanguard pioneered the index fund with its 500 Index Portfolio, but this ETF goes further toward building a truly diversified portfolio. Rather than only owning the megacap stocks that qualify for admission to the S&P 500, this ETF owns thousands of different U.S. stocks of various sizes and sectors. In a single, inexpensive investment that won't cost you a ton, you get broad-based ownership of virtually the entire U.S. stock universe.

2. Vanguard Emerging Markets Stock ETF (NYSE: VWO)
Another area of strength in the Vanguard lineup is in this emerging markets offering. In contrast to iShares MSCI Emerging Markets (NYSE: EEM), Vanguard's ETF does the unusual by offering even international investments at low costs. It's hard to beat the 0.27% expense ratio anywhere else, and with the fund owning usual suspects like China Mobile and Petroleo Brasileiro, you'll participate fully in the success of today's up-and-coming countries.

3. Vanguard Total Bond Market ETF (NYSE: BND)
Bonds are hot right now, and although it's partially for all the wrong reasons, you'll still want at least some fixed-income exposure in your portfolio. Vanguard's fund does a good job of giving you pieces of different parts of the bond market, from Treasuries and agency debt to corporate bonds.

4. Vanguard REIT Index ETF (NYSE: VNQ)
Bonds aren't the only way to earn income for your portfolio, though. Real estate investment trusts shoot off regular income to shareholders, and with many seeing the real estate market having bottomed, Vanguard's ETF has made substantial gains from its lows of last year. A yield of 3.5% includes some return of capital, but it still compares fairly well with dividend stocks and other income-producing securities.

5. Vanguard Total World Stock Index ETF (NYSE: VT)
If you'd rather not have several different stock funds, then this one might be your favorite. Vanguard Total World Stock has between 40% and 50% invested in the U.S., around 40% in developed countries in Europe and Asia, and about 15% exposure to emerging markets. If you already have your U.S. stock exposure taken care of and want just the international portion, then the Vanguard FTSE All-World ex-US ETF (NYSE: VEU) is a fair alternative.

All told, Vanguard has plenty of reasonable choices among its ETFs. Vanguard's cost-conscious investing techniques come in stark contrast to some of the high fees charged by competing ETF and mutual fund providers, and those lower costs fall through to the bottom line performance for shareholders. If you have a Vanguard brokerage account -- or you plan to get one -- then setting up a portfolio of these ETFs based on a reasonable asset allocation strategy is an easy way to jump-start your investing.

Have your brokerage account elsewhere? Stay tuned as Dan takes a look at other discount brokers and the ETFs they offer throughout the week. Next up: Fidelity and its free iShares ETF offerings.

To find the best broker for your money, be sure to check out the Fool's Discount Broker Center.

Fool contributor Dan Caplinger sees some Vanguard ETFs in his future. He has money at Vanguard but doesn't own shares of the ETFs mentioned. The Fool owns shares of Vanguard Emerging Markets Stock ETF and Vanguard Total Bond Market ETF. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is always free but still gives you great value.