Best ETFs for August 2022 and How to Invest

Once you’ve identified the best ETFs for your portfolio, it’s time to buy them — in just four steps.
how to buy ETF

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Exchange-traded funds can be an excellent entry point into the stock market for new investors. They’re cheap and typically carry lower risk than individual stocks since a single fund holds a diversified collection of investments.

Top large-cap ETFs

One way for beginner investors to get started is to buy ETFs that track broad market indexes, such as the S&P 500. In doing so, you’re investing in some of the largest companies in the country, with the goal of long-term returns. Other factors to consider include risk and the fund’s expense ratio, which is the amount you’ll pay in fees every year to own the fund — the lower the expense ratio, the less it will eat into your returns.

To arrive at our list, we looked for ETFs with expense ratios below 1% that hold the largest U.S.-based companies. We excluded leveraged, inverse and hedged ETFs and sorted them by top five-year performance.

Symbol

Fund

5-year performance

TAN

Invesco Solar ETF

296.33%

QCLN

First Trust NASDAQ Clean Edge Green Energy Index

233.5%

SMH

VanEck Semiconductor ETF

194.06%

SOXX

iShares Semiconductor ETF

193.61%

XSD

SPDR S&P Semiconductor ETF

187.43%

XLK

Technology Select Sector SPDR Fund

167.13%

LIT

Global X Lithium & Battery Tech ETF

165.87%

VGT

Vanguard Information Technology ETF

165.18%

ICLN

iShares Global Clean Energy ETF

162.62%

PTF

Invesco DWA Technology Momentum ETF

162.52%

Data is current as of August 2, 2022. Data is for informational purposes only.

How to buy an ETF

Here’s how to identify the best ETFs for you, and how to buy them in just a few steps.

1. Open a brokerage account

You’ll need a brokerage account to buy and sell securities like ETFs. If you don’t already have one, see our resource on brokerage accounts and how to open one. This can be done online, and many brokerages have no account minimums, transaction fees or inactivity fees. Opening a brokerage account may sound daunting, but it’s really no different than opening a bank account.

If you’d rather have someone do the work of investing for you, you might be interested in opening an account with a robo-advisor. Robo-advisors build and manage an investment portfolio for you, often out of ETFs, for a low annual fee (typically 0.25% of your account balance). Because robo-advisors offer curated investment portfolios, you may not be able to find and invest in the ETFs outlined above. But that’s part of their appeal — the robo-advisor picks investments for you. Here’s a list of the top robo-advisors.

To screen and invest in the specific ETFs you want, you’ll need a brokerage account at an online broker.

» Want to compare options? See the full list of our best brokers for ETF investors.

2. Find and compare ETFs with screening tools

Now that you have your brokerage account, it’s time to decide what ETFs to buy. Whether you’re after the best-performing broad index ETFs or you’d like to search for others on your own, there are a few ways to narrow your ETF options to make the selection process easier.

Most brokers offer robust screening tools to filter the universe of available ETFs based on a variety of criteria, such as asset type, geography, industry, trading performance or fund provider.

There are thousands of ETFs listed in the U.S. alone, so screeners are critical for finding the ETFs you’re looking for. Try using the below criteria in your brokerage’s screener to narrow them down:

  • Administrative expenses. Also known as expense ratios, these expenses cut into profit, so lower is better. According to Morningstar, the asset-weighted average expense ratio for passively managed funds was 0.12% in 2020, so this could be a good number to start with in your screener. You’ll find, though, that some popular ETFs have expense ratios much lower than this, so don’t be afraid to screen for below the average.

  • Commissions. These are fees you pay per transaction when you buy or sell an ETF. Fortunately, commissions are virtually nonexistent at most major online brokers these days, but it’s a good idea to check before you buy. Brokers that charge a commission often offer select ETFs commission-free.

  • Volume. This shows how many shares traded hands over a given time period — it’s an indicator of how popular a particular fund is.

  • Holdings. You’ll be able to see the top holdings in the fund, which simply means the individual companies the fund invests in.

  • Performance. You know the saying: “Past performance doesn’t indicate future returns.” But it still can be useful to compare the performance history of similar funds. Look at a fund's long-term performance, so five-year instead of one-year for example, to get a sense of how it has performed historically.

  • Trading prices. ETFs trade like stocks; you’ll be able to see current prices, which dictates how many shares you can afford to buy.

» Still not sure how it works? Learn all about ETFs first.

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3. Place the trade

The process for buying ETFs is very similar to the process for buying stocks. Navigate to the “trading” section of your brokerage’s website; in this context, “trade” means you’re either buying or selling an ETF. You’ll buy the ETF using its ticker symbol — here’s more on that and other basic terms you’ll need to know:

Ticker symbol

The unique identifier for the ETF you want to buy. Be sure to check you have the correct one before proceeding.

Price

The current trading price is determined by:

  • A “bid,” or the highest price buyers are willing to pay.

  • An “ask,” or the lowest price sellers will take in exchange.

Number of shares

The number of shares you wish to buy.

Order type

These basic order types should suffice, though additional options may be available:

  • Market order: Buy ASAP at best available price.

  • Limit order: Buy only at a specified price (or lower).

  • Stop order: Buy once a specified price has been reached (the stop price), executing the order in full.

  • Stop-limit order: When stop price is reached, trade turns into a limit order and is filled to the point where specified price limits can be met.

Commission

Price per trade the brokerage will charge for its service. Most major brokerages now offer commission-free ETF trades.

Funding source

The bank account linked to your brokerage account — be sure it has sufficient funds to cover the total cost.

And here’s what that looks like within a brokerage, in this case Vanguard:

How to buy an ETF

Before you execute your order, you’ll have an opportunity to double-check that everything is correct. Make sure your order is set up as intended: Check the ticker symbol (ETFs with similar ticker symbols can be wildly different), order type and that you haven’t made a “fat finger” error — for example, typing 1,000 shares when you intended to buy only 100.

4. Sit back and relax

Congratulations, you’ve just bought your first ETF. These funds can help form the basis of a well-diversified portfolio and serve as the first step in a long-lasting investment in the markets. There’s no need to compulsively check how this ETF (or your other investments) are performing, but you can access that information when you need it by checking the ticker symbol on your brokerage’s website or even just by typing it into Google.

Frequently asked questions
How is an ETF different from a stock?

When you buy individual stocks, you’re buying shares of a single company. An ETF holds a collection of several stocks, bonds, commodities or a combination of these, and each share you purchase gives you a slice of all of them. This is an easy way to diversify your portfolio. To build this diversification with individual stocks, you'd have to do significant research and purchase shares in many different companies.

Are ETFs safer than stocks?

In many situations, ETFs can be safer than stocks because of their inherent diversification. If you buy shares of a stock and the company performs poorly, the value of your stock goes down. If that’s the only stock in your portfolio — or even one of a few — that can be a big blow to your finances. However, if you’d purchased shares of an ETF and one or two stocks in the ETF perform poorly, the other ETF holdings can offset those losses.

Are ETFs good for beginners?

ETFs are great for stock market beginners and experts alike. They’re relatively inexpensive, available through robo-advisors as well as traditional brokerages, and tend to be less risky than investing individual stocks. (Robo-advisors are online investment advisors that build and manage a portfolio for you, often using ETFs because of their low cost.)

Learn more about sector ETFs:

Neither the author nor editor held positions in the aforementioned investments at the time of publication.

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