Broad-market index ETF

An ETF holds a basket of stocks and trades on an exchange like a single stock. One share buys a slice of the whole index, and most brokers now sell fractional shares too, so there is no real dollar floor to get in. Vanguard’s Total Stock Market ETF (VTI) charges 3 basis points a year, named here as an example of the mechanism, not a pick. The industry’s asset-weighted average expense ratio for an index equity ETF was 14 basis points in 2025, though the simple average across every index equity ETF on offer, many of them narrower or thematic, ran to 45. A broad-market fund sits at the cheap end of that range. Add a few basis points of bid-ask spread and, for a fund that rebalances, some cost from trading around index changes.

The wrapper’s real advantage is tax, not the fee. When a large investor redeems shares, the fund hands over stock instead of cash, and the tax code treats that exchange as no sale at all. The manager gives up the lots with the biggest embedded gains, and nothing is distributed to the investors who stayed. Dividends are still paid out and taxed every year regardless.

An ETF works in a taxable account, a 401(k), an IRA, a Roth, or an HSA, with no accreditation or adviser requirement. Tracking the index is close to automatic, so tracking risk is low, and there is little to manage once bought, so behavior risk is low too.