20 Best ETFs for December 2024 and How to Invest

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.

Best-performing 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 0.5% that hold the largest U.S.-based companies. We excluded leveraged and inverse ETFs. The results are listed below in order of one-year performance.

Data is current as of market close Nov. 29, 2024. Data is for informational purposes only.

Types of ETFs

There are many types of ETFs that can expose your portfolio to different assets and markets. These include:

• Stock ETFs

• Bond ETFs

• Specialty ETFs

• Sustainable ETFs

• Commodity ETFs

• Factor ETFs

• Currency ETFs

By including other sectors and types of investments within your investment portfolio you're diversifying your assets. Diversification brings down risk. In the event that one company or sector does not perform well, you have many others that may support the performance of your portfolio as a whole. You should evaluate your financial plan to decide if any of these types of ETFs are right to include in your portfolio. You'll need to consider your investment goals and risk tolerance.

More categories of ETFs

Here's a list of pages that show the best-performing in ETFs in various categories:

• Dividend ETFs with the highest yields

• Bitcoin ETFs, including fees and promotions

• Best gold ETFs

• Best clean energy ETFs

• Best semiconductor ETFs

• Best marijuana ETFs

• Best bond ETFs

• Best (and cheapest) ESG ETFs

• Best China ETFs

• Best energy ETFs

• Best real estate ETFs

• Best oil ETFs

• Best biotech ETFs

• Best technology ETFs

• Best small cap ETFs

• Best Vanguard ETFs

ETF advantages and disadvantages

ETF pros

Investors have flocked to exchange-traded funds because of their simplicity, relative cheapness, and access to a diversified product. Here are the pros:

Diversification

While it’s easy to think of diversification in the sense of the broad market verticals — stocks, bonds or a particular commodity, for example — ETFs also let investors diversify across horizontals, like industries. It would take a lot of money and effort to buy all the components of a particular basket, but with the click of a button, an ETF delivers those benefits to your portfolio. Diversification can help safeguard your portfolio against market volatility. If you invested in just one industry, and that industry had a really bad year, it's likely your portfolio would have performed poorly too. By investing across different industries, company sizes, geographies and more, you give your portfolio more balance. Because ETFs are already well-diversified, you don't have to worry about creating diversification within your portfolio.

Transparency

Anyone with internet access can search the price activity for a particular ETF on an exchange. In addition, a fund’s holdings are disclosed each day to the public, whereas that happens monthly or quarterly with mutual funds. This transparency allows you to keep a close eye on what you're invested in. Say you really don't want to be invested in oil — you'd be able to spot those additions to your ETF more easily than with a mutual fund.

Tax benefits

ETFs have two major tax advantages over mutual funds.

If you invest in a mutual fund, you may have to pay capital gains taxes (or, the profits from the sale of an asset, like a stock) through the lifetime of your investment. This is because mutual funds, particularly those that are actively managed, often trade assets more frequently than ETFs. Most ETFs, on the other hand, only incur capital gains taxes when you go to sell the investment. This means you'll pay less tax on your ETF investment overall.

As mutual fund managers are actively buying and selling investments, and incurring capital gains taxes along the way, the investor may be exposed to both long-term and short-term capital gains tax. If you're invested in an ETF, you get to decide when to sell, making it easier to avoid those higher short-term capital gains tax rates.

ETF cons

Exchange-traded funds may work well for some investors, but they aren't perfect. Here are the cons:

Trading costs

ETF costs may not end with the expense ratio. Because ETFs are exchange traded, they may be subject to commission fees from online brokers. Many brokers have decided to drop their ETF commissions to zero, but not all have.

Potential liquidity issues

As with any security, you’ll be at the whim of the current market prices when it comes time to sell, but ETFs that aren’t traded as frequently can be harder to unload.

Risk the ETF will close

The primary reason this happens is that a fund hasn’t brought in enough assets to cover administrative costs. The biggest inconvenience of a shuttered ETF is that investors must sell sooner than they may have intended — and possibly at a loss. There’s also the annoyance of having to reinvest that money and the potential for an unexpected tax burden.

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 ETFs and mutual funds was 0.36% in 2023 ^[0]

  Morningstar. The 2023 US Fund Fee Study From Morningstar. Accessed Sep 10, 2024.

  View all sources

  . 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 three-year, five-year or 10-year performance 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.

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:

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 potentially-costly typo with any numbers — 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:

• 15 Best-Performing Energy ETFs

• How to choose the right biotech ETFs for you

• Why gold ETFs are having a record year

• Marijuana ETFs: On a Roll or Up in Smoke?

• Understand S&P 500 ETFs

• Invest abroad? Check out China ETFs