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Now the ETF game is really getting interesting.

Vanguard announced it has removed trading fees on all 46 of its exchange-traded funds. In addition, the fund group lowered its commissions for buying or selling stocks or non-Vanguard ETFs to just $7 to $2, depending on the size of your account.

With these moves, Vanguard has trumped rivals Schwab and Fidelity, at least for now.

Schwab started the commission-free war last year by removing trading fees on eight of its own ETFs; it currently charges $8.95 a stock trade. Fidelity, which charges $7.95 a trade, recently waived fees on 25 iShares ETFs.

Vanguard is clearly determined to dominate. The firm, which took over its brokerage operations from Pershing last year, now manages some $100 billion in ETF assets and ranks as the third-largest ETF provider, behind iShares and State Street. That rapid growth has come about largely because Vanguard’s ETFs generally carry the lowest expense ratios of any fund family, an average of 0.18%.

That growth is likely to continue, since commission-free trading has eliminated one of the few reasons to avoid ETFs: For those who seek to make regular deposits, or simply rebalance, the cost of paying for trades can quickly outweigh the advantage of the lower expense ratios that ETFs may offer. And investors are also attracted by the generally (but not always) low fees and tax efficiency of ETFs, as well as as the ability to trade while the markets are in session.

Still, for longtime Vanguard investors, it’s surprising to see the fund family shift toward commission-free ETF trading. After all, Vanguard founder Jack Bogle has often complained that ETFs foster “short term speculation” — exactly the opposite of the patient, buy-and-hold investing approach he has long advocated.

But the move toward commission-free trading will ultimately benefit Vanguard’s mutual fund investors, says investment adviser Rick Ferri, head of Portfolio Solutions.

That’s because of the unique nature of Vanguard’s ETFs, which are share classes of existing mutual funds. This patented structure gives managers tremendous flexibility in buying and selling the portfolio’s stocks and bonds, which can improve tax efficiency and lower costs.

Ferri notes that the commission-free trades will help attract more assets and trading liquidity to Vanguard’s ETFs, some of which — its new bond ETFs, for example — still lack critical mass. So, odd as it may seem, if Vanguard sees an influx of day traders, who furiously churn their portfolios, that may eventually benefit its core group of buy-and hold investors.

UPDATE: A Vanguard spokesperson says that the fund group "will closely monitor trading of our ETFs, and if a client is engaged in excessive trading, we will reserve the right to reject further trades."

Does all this mean you should rush out and buy Vanguard’s ETFs? Or swap your existing Vanguard mutual funds for their more glamorous ETF counterparts?

Not at all. You first have to look at your long-term goals and asset allocation strategy. In many cases, your mutual funds may give you access to asset classes that you can’t find in ETFs. Or the ETFs may be thinly traded or fail to track their indexes closely; that's especially true for micro-cap and some types of emerging market stocks. And many bond funds have had trouble hewing to their indexes, particularly during the 2008 credit crunch.

Still, for your core portfolio, ETFs do offer great choices for tracking broad asset classes. And Vanguard, along with iShares and State Street, offers sound, low-cost options. [UPDATE: According to Vanguard, a switch from a Vanguard mutual fund to its ETF share class is not considered a taxable event.] The Money 70 funds, for example, include Vanguard Total Stock Market ETF and Vanguard Europe Pacific ETF , among others.

And if the price wars continue, the choices are likely to get even better.

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