As More Americans Invest in ETFs, New Research Highlights Risks and Hidden Costs [Video]

On the surface, ETFs — exchange-traded funds — managed by competing firms that track the same underlying index appear to deliver a standardized product. A new report that looks under the hood suggests otherwise.

In a 2024 Dimensional Fund Advisors report, the average annual return difference among four U.S. total market indexes over the past 20 years ranged from 0.2% to 3.2%, with an average spread of 1%.

Still, despite their seeming uniformity, there is no consistent approach to defining or tracking a market. Seemingly minor differences could have profound significance over the long term.

Many Main Street investors take a simple approach to investing. They buy passive ETFs, often through monthly dollar cost-averaging, to grow with the market gradually.

This strategy is all well and good, but not all ETFs track the same way. Some funds could quietly underperform for decades.

The gap between targeted stocks, their equivalent indexes, and the tracking fund can result …