Best online brokers for ETF investing in April 2021

This post was originally published on this site

Exchange-traded funds, or ETFs, are among the most popular ways to invest in the stock market. They offer diversification, lower risk than individual stocks and potentially attractive returns. And they do it all for what often amounts to a very reasonable cost.

© Drakula & Co./Getty Images A young woman checks her phone while at her desk at home

Here are the best online brokers for ETF investing and why you should consider them.

Load Error

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, 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 April 2021

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. In 2020, Schwab was ranked first 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

Fidelity Investments

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). 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

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 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 will eventually integrate the two companies.)

  • Trade commission: $0
  • Minimum amount to open a brokerage account: $0
  • Number of commission-free ETFs: All

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 August 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. 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: The price of one share
  • Number of commission-free ETFs: All

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 its Morningstar rating, its investing strategy, and its 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.

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 also lets you trade a few ETFs for 24 hours, five days a week – highly traded ones, so you have liquidity even when the market’s closed.

  • Trade commission: $0
  • Minimum amount to open a brokerage account: $0
  • Number of commission-free ETFs: All

Merrill Edge

Merrill Edge gets investors into the ETF game with zero commissions on trades, and its Select ETFs screener simplifies the discovery process, making it particularly easy if you know the size of fund you want, the asset class (stocks or bonds), and the investing style (value, growth, blend). If you’re looking to fill a specific box – large American growth companies, for example – the screener can help you do that quickly. It often recommends iShares and Vanguard funds, though you’re free to purchase 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, though these screens don’t return as much as data on the fund immediately, but click through and you’ll find detailed all laid out in an easy-to-digest format, including the fund’s top holdings, performance, ratings and key statistics.

  • Trade commission: $0
  • Minimum amount to open a brokerage account: $0
  • Number of commission-free ETFs: All

Ally Invest

Ally Invest wasn’t exactly a leader in commission-free ETFs at first. But since the industry’s big shift to no commissions, the broker now offers tons of them, including iShares and Vanguard funds, just to name a couple. With Ally’s screener you’ll be able to search for funds by predefined screens such as tech ETFs or S&P 500 index funds. And you’ll get performance data, Morningstar ratings and top holdings data for each fund.

Ally is a great pick if you’re already a customer of the highly rated Ally Bank, and you’re looking to expand your relationship quickly and easily to its sister brokerage.

  • Trade commission: $0
  • Minimum amount to open a brokerage account: $0
  • Number of commission-free ETFs: All

Other options: Top robo-advisors

Robo-advisors, such as Betterment and Wealthfront, will also invest in ETFs on your behalf – so don’t forget about these all-electronic portfolios as a potential option. These “do it for me” options construct a diversified portfolio based on your time horizon and risk tolerance. They’ll do it all – including throwing in some extra features such as tax-loss harvesting – for one low fee.

Learn more:

Continue Reading