Retire early with these 3 ETFs

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Nobody wants to work until they drop, but you may have little choice as the state retirement age climbs ever higher. There's only one way to seize back control, and that's by investing under your own steam. The following three exchange traded funds (ETFs) are great low-cost building blocks for your retirement portfolio.

Fees cost

ETFs have come into their own in recent years as investors wake up to the damage that high annual management fees inflict on investment fund performance. Say you invest £1o0,000 in a portfolio of actively-managed funds charging 1% a year. If it grows at 5% a year, you will have more than doubled your money to £219,112 over 20 years. However, if your ETFs charge 0.2% on average (and some charge as little as 0.03%), you will have £255,402, an incredible £36,290 more, assuming the same rate of fund growth.

If managers could regularly beat the market they would justify their higher costs, but three-quarters don't. Investors are waking up to the message and these three ETFs are particularly popular, numbering among the top five most traded in the UK.

Vanguard performance

The first is the Vanguard S&P 500 Growth ETF (LSE: VUSA), which does exactly what it says on the tin, tracking the S&P 500. The total expense ratio is a minuscule 0.15% a year, which Vanguard claims is 87% lower than the average charge on funds with similar holdings.

Over five years it's up 140%, according to Trustnet.com, piggybacking on the booming US market. Look at this: the average actively-managed fund in the Investment Association North America sector has returned notably less at 113%, according to Trustnet.com. The charges will be higher as well.

iSpy iShares

You won't be surprised to discover the second most popular ETF among British investors is the iShares FTSE 100 ETF (LSE: CUKX), which tracks the UK benchmark index of blue-chip stocks. Its ongoing charges are even lower, at just 0.07%, and it has grown 52% over five years.

Unit trust trackers have also become cheaper. For example, HSBC FTSE 100 charges just 0.18% a year. However, on £10,000 invested for 20 years, this is the difference between ending up with £25,638 (iShares) or £25,298 (HSBC). That slither of a charging difference has amounted to £340.

Mid-cap winner

In a single low-cost swoop, you've now bought into 600 of the largest companies in the Western world, big names such as Apple, Microsoft, Exxon Mobil, Amazon and Facebook in the US, and HSBC Holdings, Royal Dutch Shell, BP and British American Tobacco in the UK.

My third suggestion for your early retirement ETF portfolio is the iShares FTSE 250 (FTSE: MIDD), the fifth most popular ETF in the UK. This mid-cap index has thrashed its blue-chip counterpart lately, and the ETF is up 100% accordingly. Now you have a spread of smaller companies to go with your retirement portfolio's big boys. However, the total expense ratio is slightly higher at 0.4%. That's actually more than the HSBC FTSE 250 tracker, whose ongoing charges total 0.18%.

ETFs may be cheap, but they're not always cheapest. Yet when their performance is so strong, they certainly are very appealing.

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Harvey Jones holds iShares FTSE 100, HSBC FTSE 100 and HSBC FTSE 250. The Motley Fool UK owns shares of and has recommended Amazon.com and Facebook. The Motley Fool UK owns shares of ExxonMobil. The Motley Fool UK has recommended BP, HSBC Holdings, and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.