You might also base your decision only on a low expense ratio and forget to consider whether the fund comprises the stocks it ought to. Even in basic emerging markets ETFs, iShares' IEMG includes South Korea; Vanguard's VWO does not, though they have the same fees. Ignoring the underlying makeup of an ETF is like buying your airline ticket based on price but forgetting to check whether the airline has a good safety record.
Watch out for marketing strategies that get you in the door on a low-fee fund and later sell you into high-fee products and services. "There's a sense in which index funds or target-date funds have become the standard," said Johnson. "They are like milk and bread in the grocery store."
"It means the firms are making money other places." In a grocery store, that could mean you walk in for milk or bread but end up buying the overpriced pumpkin spice whipped cream at the checkout counter. In a fund company, you buy an inexpensive fund but end up getting sold on a nifty new retirement strategy, trading on a new hot sector, or trading in general.
Trading could be expensive and end up hurting you in the long run because individual investors have been shown to consistently trade at the wrong times. In late August, Vanguard launched its upgraded brokerage site, with most ETF trading offered free of charge. JPMorgan Chase & Co. offers no fees on as many as 100 trades a year.
That's great, on one hand, because the trades are free. On the other, if it encourages you to trade more, it's probably not. Many firms that have grabbed headlines in the race to the bottom remain in the middling ranks of Morningstar's ranking of fund families with the highest number and largest low- and no-fee funds. The top three are Vanguard, iShares and Dimensional Fund Advisors. BlackRock (which also owns iShares), Fidelity and JPMorgan fall firmly in the middle of the pack.
Focus on the overall risk and return of your portfolio over time, not on fees alone. How much will you keep? Second most important, because you don't want to feel like a chump, is how well your portfolio did compared with one at a similar risk level. Just because an ETF that represents, say, small-cap fast-growth stocks has low fees, doesn't mean it's right for your portfolio — it might have too much risk.
As a point of reference, Kinniry said he expects stocks to return about 6 percent to 8 percent, and a balanced stock and bond portfolio to earn about 5 percent annually, net of fees.
Don't assume the old rules apply. The number of ETFs and index mutual funds has multiplied. Research has shown that low fees on a fund help predict above-average returns (probably because expensive funds are below-average performers). Morningstar reported this in 2015, and the correlation holds true today. But it's less clear that the correlation holds true when the difference in fees is infinitesimal.
In the new world of proliferating ETFs, products that sound the same may no longer be. Consider two gaming-company oriented ETFs. VanEck Vectors launched ESPO, an ETF offered at 55 basis points, last week. It's competing with GAMR, launched by ETFMG with an expense ratio of 82 basis points. The two ETFs are competing, and investors might be tempted to pick based on price. But the two funds have different holdings and thus will have different performance, Rosenbluth said.
Those kinds of complexities in the market will only grow: EY estimated in late 2017 that ETF assets have the potential to hit $7.6 trillion within three years. It's natural to think that you're smarter than the rest of the pack and that you're able to take advantage of what are essentially loss leaders and marketing tactics from fund companies, while being careful to avoid the hidden costs and full-price items at the back of the showroom. Just remember to keep your guard up. Stick with a fund family known overall for low fees and other costs — but even in those cases, be wary.
Don't, Johnson emphasized, overestimate your own diligence. He's a finance professor. "I am the world's most boring investor: I do low-fee index funds," he said. "But if you asked me, Does Vanguard charge me an annual fee? I honestly couldn't tell you."