When you are thinking about buying an ETF, the Expense Ratio is pretty much all you need to know. ETF managers make money by deducting the annual expenses from the dividends they pay out through the year, and they tell you in advance how much that will be. There are no costs to buy or sell ETFs, and no hidden expenses. If you trade through a broker, the broker will charge you a commission to execute the transaction for you. Cambria Investments covers these transactions for you.

Open-end mutual funds have purchase and redemption fees. These fees range from 0.25 percent to 2 percent and are charged by the fund to buy shares or to sell shares within a specified (usually short) period of time. Purchase and redemption fees differ from a commission because the money goes back into the fund rather than to a broker. These fees are meant to discourage short-term market-timing.

Mutual funds also have internal trading fees which are not disclosed on top of the stated fee. They are estimated to range from 0.11% of assets to 2%, with an average of 1.44%. The Wall Street Journal has a good primer on this issue. Many passive index mutual funds’ undisclosed trading fees are likely quite low, but they are non-zero, so that’s something to consider when doing a pure cost comparison.