Exchange-traded funds, or ETFs, are among the most popular ways to invest in the stock market. They offer diversification, potentially attractive returns and generally lower risk than individual stocks. And they do it all for what often amounts to a very reasonable cost.
Here are the best online brokers for ETF investing and why you should consider them.
What is an ETF and why are they so popular?
ETFs have exploded in popularity since the first one launched in the US in the early 1990s. ETFs are baskets of securities similar to mutual funds that track broad indexes, such as the Standard & Poor’s 500, or smaller slices of the market, such as social media stocks, gold or healthcare.
However, unlike mutual funds, ETFs trade like stocks all day when the market is open, making them attractive to investors. These funds give investors another way to diversify their portfolio without the stress of choosing individual stocks.
“You get the benefit of diversification across a market sector or an entire market from your very first stock, rather than the concentrated risk of buying individual stocks,” says Greg McBride, CFA, chief financial analyst at Bankrate. “Like [the late Vanguard founder] Jack Bogle famously said, ‘Instead of looking for the needle in the haystack, just buy the whole haystack.’”
According to the report, more than 90 percent of investment professionals “use or recommend” ETFs to their clients Financial Planning Association Trends in Investing 2023 survey. ETFs are tax more efficient and cheaper compared to mutual funds.
Here are the best online brokers for ETF investing:
- Charles Schwab
- Fidelity Investments
- Vanguard Group
- E-commerce financial
- First class
- Merrill edge
- Ally Invest
Overview: Top online brokers for ETFs in April 2024
Charles Schwab
Charles Schwab has long been an advocate of individual investors, and the well-known discount broker long charged zero commissions on its own ETF offerings before cutting commissions to zero on all ETFs. Individual stock trades are also free, while opening and maintaining a brokerage account with Schwab is as well.
Charles Schwab also offers a wide range of educational resources, including some of the best research and user-friendly tools on the market. For example, the ETF Select List details investor-friendly funds, taking into account commissions and fees, a fund’s track record and suitability for individual investors. Former TD Ameritrade clients who are now part of Schwab should be impressed with what they find.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
Fidelity Investments
Fidelity has long been a leader in commission-free ETFs, and now all ETFs on its platform are available commission-free. It’s this investor-friendly legacy that makes the Boston-based fund giant a solid choice.
If you want research and screening tools, Fidelity won’t disappoint. You can quickly sort your ETF choices based on a number of criteria (company size, fund size, expense ratio, etc.). Fidelity also offers ETF investing ideas based on your goals, such as “investing for income” and “enhanced growth.”
Plus, Fidelity’s mobile app lets you track your portfolio, check your account balances, make trades, view your watchlist, and more.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
Forefront
Vanguard, which launched its first ETF in 2001 and manages trillions in global assets, is best known as a low-cost fund provider. In 2018, this powerful player pushed the boundaries of retail investing by making approximately 90 percent of all ETFs on its platform commission-free. Today, investors can trade all available ETFs for free.
To sort through all these ETF options, Vanguard offers screening tools, including the ability to compare ETFs based on factors such as expense ratios, management style (active or passive), average annual return, and more. And you can even have a Vanguard representative place the trade for you at no additional cost when you purchase a Vanguard ETF. Once you’ve selected your funds, you can use Vanguard’s planning tools to help you set up your financial game plan.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
E-commerce financial
E-Trade offers quite a few ways to invest in ETFs, even beyond the traditional purchase of the funds. Naturally, it offers all available ETFs commission-free. But you can also sort through more than 3,000 funds using E-Trade’s screener based on key attributes such as Morningstar rating, investment strategy and yield, among many other options. You can click a buy button directly from the search screen and add the fund to your investments.
E-Trade also gives you the opportunity to buy a ready-made ETF portfolio, with strategies such as aggressive, conservative and income, each with different levels of stocks, bonds and cash, and you can see which types of stocks are available in each fund. . You can also search by theme – think of power stations or mighty megacaps. E-Trade allows you to trade a number of ETFs (the most widely traded ETFs) 24 hours a day, five days a week, giving you liquidity even when the market is closed.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
First class
Firstrade offers commission-free trading on all of its ETFs and customers can choose from more than 2,200 funds. You’ll also get free access to Morningstar research, so you can sort through the extensive ETF offering and decide which funds are right for your portfolio. An ETF screener is also available to identify funds based on their performance, analyst ratings, or other criteria you are interested in.
Customer service representatives can also help answer any questions you may have and are available by phone during extended business hours Monday through Friday. With Firstrade’s convenient mobile trading app, you can monitor your portfolio on the go and place the necessary trades when you’re away from your desk.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
Merrill edge
Merrill Edge gets investors into the ETF game without any commission on trades, and the Select ETFs screener simplifies the discovery process, making it extremely easy as you narrow down the size of the fund you want, the asset class (stocks or bonds), and knows the investment options. style (value, growth, blend). If you want to fill a specific box – large American growth companies, for example – the screener can help you quickly. It often recommends iShares and Vanguard funds, although you are free to buy any ETFs available on Merrill’s platform.
You can search for a wider variety of ETFs using predefined screens, such as Morningstar 5-Star Stocks, although these screens don’t immediately provide as much data about the fund. If you click through, you will find it all in an overview. easy-to-understand format, including the fund’s top holdings, performance, ratings and key metrics.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
Ally Invest
Ally Invest wasn’t exactly a leader in commission-free ETFs to begin with. But since the industry’s big shift to no commissions, the broker now offers numerous ones, including iShares and Vanguard funds, to name a few. Ally’s screener lets you search for funds through predefined screens, such as tech ETFs or S&P 500 index funds. And you get performance data, Morningstar ratings and top holdings data for each fund.
Ally is a good choice if you are already a customer of the highly rated Ally Bank and want to quickly and easily expand your relationship with the sister brokerage.
- Trade Commission: $0
- Minimum amount to open a trading account: $0
Other options: Top robo-advisors
Robo-advisors, like Betterment and Wealthfront, will also invest in ETFs on your behalf, so don’t overlook these all-digital providers as a potential option. These ‘do it for me’ options build a diversified portfolio based on your time horizon and risk tolerance. They do it all – including adding some extra features, like tax-loss harvesting – for one low fee.
FAQ
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The main difference between an ETF and a mutual fund is that an ETF can be bought and sold throughout the trading day, similar to the way an individual stock would trade, while a mutual fund is priced at the end of the day based on its net value. value of assets. ETFs are therefore more liquid than investment funds.
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You can buy ETFs that allow you to pursue many different investment strategies. Passive strategies involve purchasing ETFs that track an index such as the S&P 500 and have very low fees. Over time, passive strategies have been found to outperform active management on average, which involves identifying companies, sectors or regions that a portfolio manager believes will outperform a market index. But some active managers have managed to outperform passive benchmarks over longer periods of time.
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ETFs typically have no minimum investment requirements beyond the cost of a share and any fees or commissions associated with its purchase, although many brokers now let you buy even a fraction of a share of an ETF. This is an advantage compared to investment funds that often have an investment minimum of a few thousand dollars.
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Yes, you will likely have to pay capital gains taxes on any gains you make from ETFs, unless those gains are within a tax-advantaged fund, such as a 401(k) or an IRA.
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Although ETFs and stocks trade similarly throughout the day, there are important differences between the two assets. A stock represents an ownership stake in an individual company, while an ETF typically holds a basket of stocks or other assets that gives investors access to a specific market index, sector or geography.
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A leveraged ETF is designed to provide a higher return on a benchmark index, typically two or three times the daily performance of the index. For example, a 2X S&P 500 index ETF should rise 4 percent on a day when the index rises 2 percent, while a 3X fund should rise 6 percent. Even the best leveraged ETFs carry high risk, even though they have potentially high returns.
An inverse ETF is designed to provide the opposite return of a benchmark index. For example, an inverse S&P 500 index ETF should rise 3 percent if the index falls 3 percent. Likewise, if the index rises, the inverse ETF should fall.
Because of the way they achieve this type of performance, leveraged and inverse ETFs are riskier than their regular ETF counterparts.
