ETFs, or exchange-traded funds, are a popular way to invest in the stock market. They offer diversification, potentially attractive returns, and lower risk than individual stocks. They do all this at a reasonable cost.
Here are the top online brokers for ETF investing and why you should consider them.
What is an ETF and why are they so popular?
ETFs have become very popular since the first one was launched in the U.S. in the early 1990s. They are similar to mutual funds but trade like stocks throughout the day, making them attractive to investors. ETFs provide a way to diversify a portfolio without 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.’”
More than 90% of investment professionals “use or recommend” ETFs to their clients, according to the Financial Planning Association’s 2023 Trends in Investing survey. ETFs are tax-efficient and less expensive compared to mutual funds.
Here are the best online brokers for ETF investing:
- Charles Schwab
- Fidelity Investments
- Vanguard Group
- E-Trade Financial
- Firstrade
- Merrill Edge
- Ally Invest
Overview: Top online brokers for ETFs in September 2024
Charles Schwab
Charles Schwab advocates for individual investors and offers zero commissions on its ETFs. It also provides educational resources and research tools, making it a solid choice for investors.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
Fidelity Investments
Fidelity offers commission-free ETFs and provides research and screening tools for investors. Its mobile app allows for easy monitoring of portfolios and trading.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
Vanguard
Vanguard is known for its low-cost funds and offers commission-free trading on most ETFs. It provides screening tools and planning resources for investors.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
E-Trade Financial
E-Trade offers commission-free ETF trading and a variety of investment options. Its screener helps investors find the right funds for their portfolios.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
Firstrade
Firstrade offers commission-free trading on all ETFs and provides access to research and customer service for investors.
Firstrade’s mobile trading app is a convenient way to track your portfolio and make trades on the go, even when you’re not at your desk. The app allows you to stay connected to the market and manage your investments seamlessly. Plus, with zero trade commissions and no minimum amount required to open a brokerage account, Firstrade makes it easy for investors to get started. Leveraged and inverse ETFs offer investors the opportunity for amplified returns or the ability to profit from a decline in a particular index. A leveraged ETF aims to provide a magnified return on a benchmark index, typically two or three times the index’s daily performance. For instance, a 2X S&P 500 index ETF should increase by 4 percent on a day when the index rises by 2 percent, while a 3X fund should increase by 6 percent. Despite the potential for high returns, leveraged ETFs are considered high-risk investments.
On the other hand, an inverse ETF is designed to generate the opposite return of a benchmark index. For example, an inverse S&P 500 index ETF should increase by 3 percent when the index decreases by 3 percent. Conversely, if the index rises, the inverse ETF should decrease in value. The mechanisms used to achieve these performances make leveraged and inverse ETFs riskier than traditional ETFs.
It is important for investors to understand the unique characteristics and risks associated with leveraged and inverse ETFs before incorporating them into their investment strategy. Due to their complex nature and potential for significant volatility, these types of ETFs may not be suitable for all investors.