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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.
Invesco Solar ETF
First Trust NASDAQ Clean Edge Green Energy Index
VanEck Semiconductor ETF
iShares Semiconductor ETF
SPDR S&P Semiconductor ETF
Technology Select Sector SPDR Fund
Global X Lithium & Battery Tech ETF
Vanguard Information Technology ETF
iShares Global Clean Energy ETF
Invesco DWA Technology Momentum ETF
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.
per trade for online U.S. stocks and ETFs
when you open a new, eligible Fidelity account with $50 or more. Use code FIDELITY100. Limited time offer. Terms apply.
Up to $600
when you invest in a new Merrill Edge® Self-Directed account.
Get up to $600 or more
when you open and fund an E*TRADE account
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:
The unique identifier for the ETF you want to buy. Be sure to check you have the correct one before proceeding.
The current trading price is determined by:
Number of shares
The number of shares you wish to buy.
These basic order types should suffice, though additional options may be available:
Price per trade the brokerage will charge for its service. Most major brokerages now offer commission-free ETF trades.
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:
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.
Learn more about sector ETFs:
Neither the author nor editor held positions in the aforementioned investments at the time of publication.