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 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.
In fact, 85 percent of financial advisors “use or recommend” ETFs to their clients, according to the Financial Planning Association’s 2020 Trends in Investing survey . ETFs are more tax-efficient and less expensive when compared with mutual funds.
The benefits of investing with ETFs are plentiful, according to Greg McBride, CFA, chief financial analyst at Bankrate.
“Many ETFs can be purchased and sold commission-free, depending on which brokerage firm you’re using,” says McBride. “Like mutual funds, reinvestment of stock dividends and bond interest payments is frequently offered and the only real minimum investment amount you face is the price of buying one share. Further, expense ratios are lower for ETFs than the mutual fund version of the same holding.”
ETFs are much more flexible from a trading standpoint than mutual funds.
“ETFs offer the convenience of intraday buying and selling, so you know the price [you paid], rather than rolling the dice on what the mutual fund’s net asset value is going to be at the market close,” says McBride.
“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,” he says. “As [the late Vanguard founder] Jack Bogle famously said, ‘Rather than look for the needle in the haystack, just buy the whole haystack.'” 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 November 2021
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. In 2021, Schwab was ranked second among do-it-yourself investors in J.D. Power’s annual study of self-directed firms.
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 Number of commission-free ETFs: All It wasn’t that long ago that the Boston-based fund giant increased the number of commission-free ETFs it made available to more than 500. Since then, Fidelity has upped its game even more, offering all ETFs on its platform at no commission. It’s that investor-friendly heritage that makes Fidelity 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 Number of commission-free ETFs: All TD Ameritrade is a good option for beginners and any investor on the hunt for ETFs. The discount brokerage now offers all the ETFs on its platform for a commission of zero, and there is no minimum balance required. Plus, the broker recently 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 […]
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