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.
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What is an ETF and why are they so popular?
ETFs have skyrocketed in popularity since the first one in the U.S. was launched in the early 1990s. ETFs are baskets of securities similar to mutual funds that track broad indexes like the Standard & Poor’s 500 or smaller slivers of the market, such as social media stocks, gold or health care.
However, unlike mutual funds, ETFs trade like stocks throughout the day when the market is open, which makes them attractive to investors. These funds provide another way for investors to diversify their portfolio without having the stress of choosing individual stocks.
“You get the benefit of diversification over a market sector or an entire market from your very first share, rather than the concentrated risk of buying individual stocks,” says Greg McBride, CFA, chief financial analyst at Bankrate. “As [the late Vanguard founder] Jack Bogle famously said, ‘Rather than look for the needle in the haystack, just buy the whole haystack.’”
In fact, 65 percent of financial advisors “use or recommend” ETFs to their clients, according to the Financial Planning Association’s 2022 Trends in Investing survey. ETFs are more tax-efficient and less expensive when compared with mutual funds.
Here are the best online brokers for ETF investing:
- Charles Schwab
- Fidelity Investments
- TD Ameritrade
- Vanguard Group
- E-Trade Financial
- Merrill Edge
- Ally Invest
Overview: Top online brokers for ETFs in July 2023
Charles Schwab
Charles Schwab is a long-time advocate of individual investors, and the well-known discount broker had long charged zero commissions on its own ETF offerings, before lowering commissions on all ETFs to zero. Individual stock trades are also free, while opening and maintaining a brokerage account at Schwab is, too.
Charles Schwab also provides a wide breadth of educational resources, including some of the best research and user-friendly tools in the market. Its ETF Select List, for instance, details investor-friendly funds, taking into consideration commissions and fees, a fund’s track record and suitability for individual investors.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
Fidelity Investments
Fidelity has long been a leader in commission-free ETFs, and now all ETFs on its platform are available at no commission. It’s that investor-friendly heritage that makes the Boston-based fund giant a solid pick.
If you want research and screening tools, Fidelity won’t disappoint. You can quickly sift your ETF choices by any number of criteria (company size, fund size, expense ratio, etc.). Fidelity also provides ETF investing ideas based on your goals, such as “investing for income” and “enhanced growth.”
Additionally, Fidelity’s mobile app will allow you to monitor your portfolio, check your account balances, make trades, view your watch list and more.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
TD Ameritrade
TD Ameritrade is a good option for beginners and any investor on the hunt for ETFs. The discount brokerage offers all the ETFs on its platform for a commission of zero, and there is no minimum balance required. Plus, the broker scrapped its short-term trading fee of $13.90 for trading out of an ETF after less than 30 days, so no sweat there.
Among the tools available to you include an ETF screener that helps you find funds matching your investing goals. You can screen by fund size, Morningstar style category, investment style, dividends and so on. Then track everything and trade on either of TD Ameritrade’s mobile apps.
(Charles Schwab has purchased TD Ameritrade, and the companies expect most accounts to be converted to Schwab between April and September 2023.)
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
Vanguard
Vanguard, which introduced its first ETF in 2001 and manages trillions in global assets, is best-known for being a low-cost fund provider. In 2018, this powerful player pushed the boundaries of retail investing by making about 90 percent of all ETFs on its platform commission-free. Today investors may trade all available ETFs at no cost.
To sort out all of those 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 many more. And you can even have a Vanguard representative place the trade for you at no extra charge if you’re buying a Vanguard ETF. Once you’ve selected your funds, then turn to Vanguard’s planning tools to help you get your financial game plan in place.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
E-Trade Financial
E-Trade offers quite a few ways to invest in ETFs, even beyond the traditional purchase of the funds. Of course, it offers all available ETFs on a commission-free basis. But you’ll also be able to sort more than 2,000 funds using E-Trade’s screener by key traits such as Morningstar rating, investing strategy and yield, among many other options. You can click a buy button straight from the search screen and be on your way to adding the fund to your holdings.
What is an ETF and why are they so popular?
E-Trade also gives you the option of buying a pre-built ETF portfolio, with strategies such as aggressive, conservative and income, each with varying levels of stocks, bonds and cash, and you can see the kinds of stocks available in each fund. You can also search by theme — think energy power houses or mighty mega-caps. E-Trade lets you trade a few ETFs — highly traded ones — for 24 hours, five days a week, so you have liquidity even when the market’s closed.