ETFs, or exchange-traded funds, have become a popular way to invest in the stock market due to their diversification, potential returns, and lower risk compared to individual stocks. They offer all of these benefits at a reasonable cost.
If you’re considering ETF investing, here are some of the best online brokers to consider:
What is an ETF and why are they so popular?
ETFs have gained popularity since the 1990s and are similar to mutual funds but trade like stocks throughout the day. This feature makes them attractive to investors looking for diversification without the stress of picking individual stocks.
According to the Financial Planning Association’s 2023 Trends in Investing survey, over 90% of investment professionals recommend ETFs to their clients due to their tax efficiency and lower costs 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 July 2024
Charles Schwab
Charles Schwab offers commission-free ETF trading and provides a wide range of educational resources and research tools for investors. Opening and maintaining a brokerage account at Schwab is also free.
- 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. Their mobile app allows users to monitor their portfolio and make trades easily.
- Trade commission: $0
- Minimum amount to open a brokerage account: $0
Vanguard
Vanguard offers commission-free ETF trading and provides screening tools to help investors choose the right funds. They also offer planning tools to help investors with their financial goals.
- 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 ways to invest in ETFs. They provide a screener to help investors choose funds based on their preferences and offer pre-built ETF 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 over 2,200 funds. They offer Morningstar research and an ETF screener to help investors make informed decisions.
Customer service reps are available to assist with any questions investors may have.
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. Plus, you can enjoy zero trade commissions and no minimum amount required to open a brokerage account.
Other brokerage options like Merrill Edge and Ally Invest also offer commission-free ETFs with no minimum investment requirements, making it easy for investors to access a wide range of funds. Additionally, robo-advisors like Betterment and Wealthfront provide automated portfolio management services, including ETF investments, for a low fee.
If you have questions about ETFs, check out our FAQ section for answers to common queries, such as the difference between ETFs and mutual funds, the benefits of passive vs. active ETF management, and tax implications of ETF investments. Leveraged and inverse ETFs offer investors the opportunity to achieve magnified returns or the opposite return of a benchmark index. A leveraged ETF aims to provide a return that is two or three times the daily performance of the index it tracks. For example, 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. However, it’s essential to note that leveraged ETFs come with high risk due to their potential for high returns.
On the other hand, an inverse ETF is designed to deliver the opposite return of a benchmark index. For instance, an inverse S&P 500 index ETF should rise by 3 percent when the index falls by 3 percent. Conversely, if the index experiences growth, the inverse ETF should decline in value. The mechanisms that drive the performance of leveraged and inverse ETFs make them riskier than traditional ETFs.
It’s crucial for investors to understand the unique characteristics and risks associated with leveraged and inverse ETFs before incorporating them into their investment strategies. These types of ETFs can add complexity and volatility to a portfolio, so thorough research and consideration are necessary before investing in them.