Low-Cost ETFs That Beat Mutual Funds

For years, mutual funds were the go-to option for long-term investors. But in 2025, low-cost ETFs have taken center stage and for good reason. With lower fees, better tax efficiency, and increasingly competitive performance, many ETFs are consistently outpacing traditional mutual funds.

If you’re a cost-conscious investor looking to stretch every dollar, this list is for you. Below are 6 standout ETFs that have not only delivered strong returns but also beat out their mutual fund counterparts over time.

1. Vanguard Total Stock Market ETF (VTI)

Expense Ratio: 0.03%
5-Year Avg Return: ~11.1% (as of mid-2025)
Risk Level: Moderate to High

Why it beats mutual funds:
VTI gives you exposure to the entire U.S. stock market—from large caps to microcaps—for almost zero cost. Compared to total market mutual funds that often charge 0.30%+, VTI’s low expense ratio can mean thousands saved over the long term.

Best for: Investors seeking broad U.S. equity exposure with minimal fees.

2. iShares Core S&P 500 ETF (IVV)

Expense Ratio: 0.03%
5-Year Avg Return: ~10.8%
Risk Level: Moderate to High

Why it beats mutual funds:
IVV tracks the S&P 500 just like a typical mutual fund might, but it does so at a fraction of the cost. It has outperformed many actively managed large-cap funds and has similar returns to other index funds like SPY, but with a lower price tag.

Best for: Long-term investors who want to mirror the U.S. stock market’s top 500 companies.

3. Schwab U.S. Dividend Equity ETF (SCHD)

Expense Ratio: 0.06%
5-Year Avg Return: ~9.5%
Risk Level: Moderate

Why it beats mutual funds:
SCHD focuses on high-quality dividend-paying stocks, offering strong yield potential and low volatility. Many dividend-focused mutual funds can charge 0.50% or more in fees—SCHD does it for pennies on the dollar.

Best for: Income-seeking investors looking for growth and stability.

4. Vanguard Total Bond Market ETF (BND)

Expense Ratio: 0.03%
5-Year Avg Return: ~2.9%
Risk Level: Low to Moderate

Why it beats mutual funds:
BND offers broad exposure to U.S. investment-grade bonds. While it’s not a performance juggernaut, its cost efficiency and diversification have helped it beat many actively managed bond mutual funds especially after accounting for taxes and fees.

Best for: Conservative investors building a core fixed-income position.

5. iShares MSCI USA Min Vol Factor ETF (USMV)

Expense Ratio: 0.15%
5-Year Avg Return: ~9.2%
Risk Level: Low to Moderate

Why it beats mutual funds:
USMV is designed to offer lower volatility while still capturing market upside. Actively managed “defensive” mutual funds can carry higher fees without offering better downside protection. USMV delivers steady growth with less noise.

Best for: Risk-averse investors who still want equity exposure.

6. Vanguard FTSE All-World ex-US ETF (VEU)

Expense Ratio: 0.07%
5-Year Avg Return: ~5.6%
Risk Level: Moderate

Why it beats mutual funds:
VEU gives you global diversification outside of the U.S., covering developed and emerging markets. Compared to international mutual funds with higher management fees and capital gains distributions, VEU is a leaner, more tax-friendly alternative.

Best for: Diversifying beyond the U.S. economy in one simple ETF.

Why Low Fees Matter More Than You Think

Paying an extra 0.50% annually might not seem like much but over 20+ years, it adds up. Here’s how $100,000 invested at 8% annual returns would grow:

At 0.05% fees (ETF): $466,000
At 0.60% fees (Mutual Fund): $408,000

That’s nearly $60,000 lost to fees alone. Lowering expenses is one of the few factors you can control in investing—why not take advantage?

Final Thoughts: ETF Wins on Cost, Tax, and Access

While not every ETF will outperform every mutual fund, the odds are in your favor when you focus on low-cost, diversified ETFs. In 2025, there’s more transparency, better tax treatment, and often better performance on the ETF side—especially when compared to actively managed funds with higher costs.

Whether you’re investing in stocks, bonds, or global markets, there’s likely an ETF that does the job better and cheaper.

>> Next Up: Curious about investing strategy?
Read: Passive vs. Active Investing: Which Side Are You On?