4 Roth IRAs with the Lowest Expense Ratios (SCHB, VTI)

December 1, 2015 — 9:36 AM EST

While the returns delivered by an investment over time can vary significantly, choosing investments with low expense ratios is the one thing investors can control that directly affects the returns of their portfolios. Lower expense ratios mean investors get to keep a greater share of their mutual fund or exchange-traded fund's (ETF) returns.

Roth individual retirement accounts (IRAs) have the advantage of being available for just about any type of investments. Stocks, bonds, mutual funds and ETFs are all eligible, so it is important to focus on products with the lowest transaction fees and expense ratios.

In general, index mutual funds and ETFs carry lower expense ratios than actively managed funds, because they do not require a team of fund managers and analysts working to research and choose securities for the portfolio. Index funds just passively replicate a benchmark.

Many index mutual funds available in the marketplace have ETF counterparts that are essentially managed in an identical manner. For example, the Vanguard 500 Index Fund and the Vanguard 500 ETF both attempt to replicate the Standard & Poor's (S&P) 500 Index. The main difference between the two is intraday tradability. Mutual funds price only once at the end of the day, while ETFs can be traded like stocks throughout the day. Both products likely have similar expense ratios so the cost difference between the two should be largely negligible.

Many low-cost funds and ETFs can even be purchased commission-free if the transaction is made through a no transaction fee brokerage account platform, making them even more ideal for investors looking for the least expensive options for their Roth IRA accounts. The following options all meet the criteria of providing liquidity, broad diversification and bare minimum fees to the investor.

Schwab U.S. Broad Market ETF

With most S&P 500 and total stock market index funds essentially producing the same index-matching return, the fight is on to see who drops their expense ratios the lowest. As of November 2015, the cheapest ETF title goes to the Schwab U.S. Broad Market ETF (NYSEARCA: SCHB), with an expense ratio of just 0.04%. As is often the case, the Schwab ETF is offered with no transaction fees through the Schwab OneSource platform, but it may incur trading fees if purchased through different brokers.

Vanguard Total Stock Market Index Fund

The Vanguard Total Stock Market Index Fund goes beyond just the S&P 500 and looks to invest in stocks of all market capitalizations. This fund also comes as an ETF, the Vanguard Total Stock Market ETF (NYSEARCA: VTI), and each maintains an expense ratio of 0.05% annually. With an incredible 3,809 different holdings in the portfolio as Sept. 30, 2015, VTSAX is likely a bit overdiversified, but as a total market fund offering, it provides an ideal "all in one" equity with a razor-thin expense ratio.

iShares Core Aggregate Bond ETF

The iShares Core Aggregate Bond ETF (NYSEARCA: AGG) is one of the least expensive bond market offerings in the marketplace with an expense ratio of just 0.08%. The fund's focus on only investment-grade securities helps make it an ideal choice for the income-producing part of any retirement portfolio. However, the fund carries risks. It is more heavily weighted toward Treasury securities and carries an effective duration of over 5. This means that for every 1% increase in interest rates, the fund could be expected to drop by 5% in value. With interest rates at historically low levels and looking like they could begin making a long-term move higher, the fund could carry a bit higher risk.

Schwab U.S. Treasury Inflation-Protected Securities (TIPS) ETF

Over the last several years, Treasury Inflation-Protected Securities (TIPS) have become popular among income investors due to the fact that they are indexed against inflation and help protect against a loss of purchasing power. The Schwab U.S. TIPS ETF (NYSEARCA: SCHP) is the cheapest offering in this space with an expense ratio of 0.07%.

While this fund is considered low risk, strangely, it does not always produce a yield. An environment of low interest rates and a low inflation rate have combined to push this fund to a 0% yield as of Nov. 6, 2015. In fact, it has not paid a monthly dividend since Dec. 1, 2014.