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Could ETFs Ever Be Free?

By Dan Dzombak - Apr 11, 2013 at 9:14PM

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Vanguard’s Head of Investments believes at some point, ETFs could be free.

Over the years, the expense ratios on ETFs have come down to absurdly low levels, as the size of their assets under management have grown. State Street's (STT -1.52%) SPDR S&P 500 ETF (SPY -0.76%) is the largest ETF in the world, with $131 billion in assets under management and an expense ratio of 0.09%. Other funds cost even less, including Vanguard's S&P 500 ETF (VOO -0.72%), which has an expense ratio of just 0.05%.

According to the Financial Times, at a recent conference in London, Vanguard's head of retail said, "I would like to think the cost of investing [in ETFs] could come down to zero. There will always be a fixed cost in there, but if [a firm's asset] volume is big [enough], the total expense ratio can come right down."

While it seems absurd to think that ETFs could ever be free, it's actually possible. In the below video, Motley Fool contributor Dan Dzombak explains how this could happen.

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Stocks Mentioned

SPDR S&P 500 ETF Trust Stock Quote
SPDR S&P 500 ETF Trust
SPY
$393.89 (-0.76%) $-3.03
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,941.48 (-0.81%) $-32.27
BlackRock, Inc. Stock Quote
BlackRock, Inc.
BLK
$618.35 (1.12%) $6.84
State Street Corporation Stock Quote
State Street Corporation
STT
$68.67 (-1.52%) $-1.06
Vanguard Index Funds - Vanguard S&P 500 ETF Stock Quote
Vanguard Index Funds - Vanguard S&P 500 ETF
VOO
$362.18 (-0.72%) $-2.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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