In most years, investors should expect their investments to appreciate anywhere from 5% to 10%.

Warren Buffett is even more precise, suggesting that 6% to 7% gains should be the norm in the years ahead (when dividend payments are included.)

Trouble is, many mutual funds charge 1% or even 2% annual fees, which can take a decent chunk out of your returns. That's why exchange-traded funds (ETFs) have become so popular. The most expensive ETFs typically charge no more than 0.80% annual expense ratios, and the many of the most popular ETFs charge a whole lot less than that.

Here's a quick look at the nation's most popular ETFs, and the expense levels they carry.

top-10-etfs-chart
Source: Morningstar.com, ETFDB.com

Let's face it, some investors just enjoy picking stocks. They have the time and energy to continually track the market and investments, and make portfolio adjustments on a regular basis.

But most investors lack the time or desire to try to stay one step ahead of the crowd. These folks are content to simply see their nest egg grow steadily in value, with a wish to neither outperform nor underperform the broader market.

That explains the appeal of the SPDR S&P 500 ETF (NYSE: SPY). Investors have poured more than $100 billion into this fund, and few of this fund's holders look to sell until they need the funds for retirement or a major life expense such as a new home purchase.

A quick glance at this group of leading ETFs shows a decent bit of redundancy. For example, the SPDR S&P 500 ETF and the iShares Core S&P 500 ETF (NYSE: IVV) have identical portfolios. There is a subtle difference, though, according to analysts at Morningstar: 'Unlike SPDR S&P 500 SPY, which is a unit investment trust, this ETF is not subject to any constraints on reinvesting dividends or lending securities, tools that indexers often use to keep pace with the benchmark.'

Still, the fact that both of these funds have delivered a 7.2% annual average return over the past five years (according to Morningstar) and both have expense ratios below 0.1% means they are virtually interchangeable.

Yet there are good reasons for spreading the wealth toward other types of assets as well. For example, even though they always carry short-term risk, emerging markets represent robust long-term growth rates. To be sure, emerging market stocks have underperformed U.S. stocks in recent years, but the fastest-growing middle classes reside far away from the U.S. and Europe.

Though there are multiple emerging market ETFs available, the Vanguard FTSE Emerging Markets ETF (NYSE: VWO) holds great appeal, in part due to its category-low 0.18% expense ratio.

And even as you seek out S&P 500 ETFs as a core holding, don't forget smaller cap stocks. Small companies can deliver robust growth as they tap into underserved niches that are left unexploited by their larger, less nimble rivals. The iShares Russell 2000 Index ETF (NYSE: IWM) has outperformed the mighty SPDR S&P 500 ETF on a one-year, three-, five- and 10-year basis, according to Morningstar.

It's also worthwhile to check out the leading ETFs that have yet to crack the top 10 but are gaining ground. My favorites among these up-and-comers include:

  • Vanguard REIT Index ETF (NYSE: VNQ), which is comprised of our nation's largest real estate firms, and carries a quite-reasonable 0.10% expense ratio.
  • The Vanguard Dividend Appreciation ETF (NYSE: VIG), which only owns stocks which have seen their dividends rise in each of the past 10 years. Note that you can secure better dividend yields in other ETFs. This Vanguard ETF tends to avoid higher-yielding, but often riskier stocks. And the 0.10% expense ratio is just a fraction of some other dividend-focused ETF expense loads.
  • The Energy Select Sector SPDR (NYSE: XLE) helps investors to profit from the never-ending global thirst for oil and gas. One of the reasons that Morningstar gives this ETF a five-star rating: 'Firms comprising more than 85% of the value of XLE's portfolio are deemed by Morningstar's equity analysts as possessing an economic moat, or sustainable competitive advantage.' The 0.18% expense ratio is far lower than you will find on any energy-focused mutual fund.

The Investing Answer: Mutual fund managers can still be helpful when investing in specific niches such as a particular country or commodity. But for most investors, ETFs deliver all of the exposure you need, without those onerous fund fees.