SAN DIEGO (ETFguide.com) - Americans everywhere are cutting back their spending like never before. Faltering retail sales, a depressed housing market and sagging discretionary spending tell most of the story. But are they scaling back where it matters most?

While people have been quick to cut their expenses and credit card bills, even fewer have taken the decisive steps to cut their expenses where it matters most - in their investment portfolios and retirement savings. What good is saving $25 bucks a week by clipping coupons if you're leaking money with high cost mutual funds or investments that contain lots of fat?

This is where exchange-traded funds (ETFs) can help. ETFs are index mutual funds that trade like stocks.

A brief look at ETFs across major fund categories shows they have substantially lower expenses compared to actively managed mutual funds. Low expenses are good for you. The less you pay the more of your investment returns you get to keep. Conversely, the more you pay in fees the more you'll share with Wall Street's fund managers. Don't be generous, be stingy!

But which ETFs have among the lowest costs in their respective categories? We decided to find out.

We started by scanning through ETF products in ETFguide.com's database. Users can search for ETFs by their asset class, fund category, indexing strategy or by the ETF provider. We looked for the lowest cost ETFs by their fund category.

Here's a list of the top low cost ETFs in key fund categories:

Vanguard Total Stock Market ETF (NYSEArca: VTI - News)

If you're looking for a good core low cost U.S. stock fund, then VTI would be a great place to start. The fund's strategy is to simply replicate the performance of the total U.S. stock market. That means VTI will give you all inclusive exposure to large, mid, and small cap stocks.

VTI's annual expense ratio is a rock bottom 0.07%. That means a $100,000 investment over a one-year period would amount to just $70 dollars. That's a gigantic savings bonanza, especially when the typical equity mutual fund investor is accustomed to paying $1,400 per year!

iShares S&P SmallCap 600 Index Fund (NYSEArca: IJR - News)

Many people have heard or read about the S&P 500, but too few about the S&P SmallCap 600. While the former is used as a popular measurement of U.S. stocks, it omits small companies. Owning a small cap ETF like IJR is the obvious solution to filling any missing gaps in portfolio exposure. The market cap or size of companies within the S&P SmallCap 600 is generally between $300 million up to a ceiling of $2 billion.

The average annual cost for mutual funds that invest in small stocks is 1.39%. Yet, over the past five years, the S&P SmallCap 600 has beaten more than 67% of small cap equity mutual funds. Put another way, small cap investors have been paying more than their fair share for underperformance.

Incidentally, small cap stocks have been one of the best performing segments of the U.S. stock market so far this year. If your portfolio doesn't have exposure to this area, look at what you've been missing.

Select Sector SPDRs family of 9 Sector ETFs

My article title may have been a little misleading, because I'm going to throw in the Sector SPDRs, a family of 9 ETFs that follow specific industry sectors within the S&P 500.

In 1998, this family of ETFs started out with each of their sector ETFs charging annual expenses of 0.65%. Today, the annual fees in these funds have dropped to 0.21%. If you're a sector investor, the Select Sector SPDRs should be on your short list of sector ETFs to follow.

Popular funds in this family follow energy stocks (NYSEArca: XLE - News), healthcare stocks (NYSEArca: XLV - News), technology stocks (NYSEArca: XLK - News), and even demoralized financial stocks (NYSEArca: XLF - News).

Vanguard Total Bond Market ETF (NYSEArca: BND - News)

Here's what Standard & Poor's research recent said about bond investing: 'Across all (bond) categories, except emerging market debt, more than 75% of active (fund) managers have failed to beat fixed income benchmarks. Similarly, five year asset weighted average returns are lower for active funds in all but two categories.'

What does all of this mean?

Here's the simple translation: Investors in a bond index fund or bond ETF would've likely performed better than active bond funds - and they would have done it with lower fees!

BND follows the Barlcays US Aggregate Bond Index and BND's annual expenses are a very low 0.11%.

Vanguard Emerging Markets ETF (NYSEArca: VWO - News)

You won't find a lower cost emerging markets fund anywhere. VWO's annual expense ratio is just 0.25%. In fact, VWO's nearest competitor is the iShares MSCI Emerging Markets ETF (NYSEArca: EEM - News), which charges 0.72% or almost triple the annual expenses.

VWO is benchmarked to the MSCI Emerging Markets Index. The index is a free float-adjusted market capitalization index that is designed to measure equity market performance of 25 emerging markets. Those countries include Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Do the Math

How much do investment costs matter? An investor with a $500,000 portfolio paying 1.50% in fund expenses would have compounding financial costs of $173,427 over 20 years. The scary part is that number doesn't include taxes, sales loads, internal brokerage costs from trading by the portfolio manager and frictional costs like bid/ask spreads of the securities being bought/sold by the portfolio manager. If we include all of these subtle costs, the actual out-of-pocket damage might be closer to $300,000!

If that same person with a $500,000 just invested in low cost index funds or index ETFs and had average annual costs of 0.35%, their fund expenses over 20 years would be just $36,188. What would you rather pay? $300,000 in compounding investment fees or less than $50,000? You decide.

Keeping your mutual fund expenses low in any kind of market is a crucial element of your success. It's even more crucial now, since the bull market returns of the past are long gone. Simply put, the less you spend on fund fees the more you get to keep in your own pocket. You can take that to the bank!