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Best Online Brokers for ETF Investing 2019

Jan. 4, 2019
Brokers, Investing
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Exchange-traded funds have surged in popularity because they offer investors a simple way to build a diversified portfolio on the cheap. Investors don’t have to search far and wide to invest in these assets: They’re a common offering of both online brokers and robo-advisors.

ETFs trade like individual stocks, so many of the features sought by investors in a stock trading account are also relevant to ETF-focused investors. But because ETFs essentially are mini-mutual funds, it’s important to consider other criteria, including a broker’s fund selection and tools for creating a well-diversified portfolio. Of course, the number of commission-free offerings also is important.

Here are NerdWallet’s picks for best online brokers for every kind of ETF investor, whether you’re looking for a broker with the broadest range of ETFs, the lowest account minimum, the least-expensive commissions, the best platform to help you build and manage a portfolio, or the breadth of ETFs with a socially responsible focus.

Best overall brokers for ETF investors

These online brokers offer the broadest range of high-quality commission-free ETFs, in addition to tools to help investors pick the best ones for a well-rounded portfolio.

For 2019, Charles Schwab and Vanguard are the best overall brokers for ETF investing, thanks to their robust lineup of ETFs, low commissions and tools to help investors at all levels assemble top-notch ETF portfolios.

Both Vanguard and Schwab also are among the best brokers for mutual funds, so it makes sense that they’re solid choices for ETF investors. Vanguard may be best known for its index funds, but the broker made a pretty dramatic change in 2018 that will appeal to ETF investors: Vanguard’s lineup of commission-free ETFs, which includes 80 of its own funds, now totals a whopping 1,800. Meanwhile, Schwab boasts 260-plus commission-free ETFs, which may seem paltry by comparison but still is one of the highest among brokers reviewed by NerdWallet. The rest of its offerings carry competitive fees of $4.95 per trade. Both brokers have $0 account minimums, making it easy to jump in and start investing.

Two tools offered by Schwab are among the standout features that make this broker appealing to ETF investors. First is the company’s ETF Portfolio Builder, which helps investors create a diversified ETF portfolio based on risk tolerance. Second is its quarterly ETF Select List, a list of prescreened ETFs divided by category that makes it easy to identify funds to fill any portfolio gaps.

Vanguard has set the tone for low-cost investing, consistently offering ETFs and mutual funds with well-below-average expense ratios. The broker doesn’t target active trading; in fact, its cost model discourages it, and there’s no trading platform or analysis tools. What you’ll find in return is in-depth expert analysis to help you choose investments. Vanguard simplifies the selection process, recommending a four-fund portfolio strategy that balances the benefits of diversification with ease of management.

One note: While Vanguard’s overall score may appear low compared with others on this list, that’s a comprehensive rating that takes into account features applicable to more-active traders.

Best low-cost brokers for ETFs

These brokers offer a large number of commission-free ETFs. 

All you need is enough money in your account to buy a single share to start building your ETF portfolio at these brokers. It’s tough to beat Robinhood‘s lineup of 2,000-plus ETFs, all available commission-free. That’s the largest of any broker NerdWallet reviews. But its no-cost model also is pretty no-frills. While you can create watch lists and access real-time data, Robinhood lacks the robust research reports, screening tools and sophisticated trading platform that other brokers offer. It also has a more limited range of investment options (namely, no mutual funds) compared with other brokers. Also, it supports only individual taxable accounts and not IRAs. But if slashing all fees — annual, inactivity and trading commissions — is a top priority, then Robinhood delivers.

At the other end of the spectrum is Interactive Brokers, which caters to active and advanced traders. The broker’s lineup of commission-free ETFs, 48, is respectable, but nothing to write home about. But Interactive Brokers more than makes up for it with one of the cheapest cost models of any broker: ETF trades are $0.005 per share, with a minimum cost of $1 and maximum of 1% of the trade value — and volume discounts are available. What’s more, Interactive Brokers has a huge selection of high-quality research and a robust trading platform.

If these two options have you feeling like Goldilocks, Ally Invest and Fidelity are worthy of mention. Both have solid ETF offerings, no account minimum and competitive costs of $4.95 a trade.

Also worth noting in the low-cost category are two investing apps with extremely low investing minimums that are aimed at new investors who want to add small amounts of money over time:

  • Stash operates like an ETF matchmaker that makes recommendations based on the usual user inputs (risk tolerance and goals) as well as their personal interests and values.
  • Acorns operates on the “save your spare change” model; it rounds up purchases on linked credit or debit cards and puts the money into a computer-managed ETF portfolio.

The drawback of these apps is that the ETF pickings are slim.

Best online advisors for hands-off ETF investing

These robo-advisors will build a customized portfolio of low-cost ETFs based on your investing goals and risk tolerance. Plus, they’ll keep it balanced and optimized for tax savings.

ETFs are the investment of choice for robo-advisors, which makes these automatic investing services a one-stop shop for investors who want a customized portfolio built, managed and maintained for them based on their time horizon and appetite for risk. Wealthfront and Betterment, which have consistently been among NerdWallet’s top picks for best robo-advisors for years, can ably get the job done for less than it costs to hire an investment manager.

The same rules about keeping fees in check apply to all ETF shoppers, whether you’re looking to hire a robo-advisor or going the do-it-yourself route. Expense ratios on ETFs used in Wealthfront portfolios average 0.08%, compared with 0.13% at Betterment.

What you’ll pay in management fees depends on the size of your portfolio. If you have $5,000 or less to invest, Wealthfront is the most cost-effective choice, with no management fee on the first $5,000 (for readers who sign up through NerdWallet) and 0.25% on investments exceeding that amount. Betterment has two fee plans, 0.25% or 0.40% per year, based on the level of service you want. (See more details about the differences between the two robo-advisors in our Wealthfront vs. Betterment comparison.)

Best online brokers for ETF tools and screeners

These brokers offer useful features that can help investors more easily assemble an ETF-based portfolio.

  • Etrade
    NerdWallet Editor Review
  • Trade Commission $6.95 with volume discounts available
  • Account Minimum $500 ($0 for IRAs)
  • Promotion Up to $600 60 days of commission-free trades with qualifying deposit

We couldn’t make it through a list of best brokers without naming two that routinely show up on several of our other lists, including best brokers for stock trading, beginners and IRAs. TD Ameritrade and E-Trade offer a happy middle ground for investors who don’t want to cede complete control over their investing to a robo-advisor but still want some professional guidance. Both brokers offer tools to help investors assemble a risk-appropriate, balanced portfolio of ETFs — and with comparable commissions of $6.95 per trade. (And for those who aren’t ETF purists, the companies will help you include mutual funds and stocks, too.)

TD Ameritrade offers more than 300 commission-free ETFs, compared with E-Trade’s lineup of 250-plus. Both cover a mix of equity funds, bond funds, international funds and commodity funds. What’s more, investors won’t have to sacrifice the professional tools and resources necessary to make informed decisions. One of TD Ameritrade’s standout features is the Portfolio Planner tool, which helps users create a target asset allocation plan to assemble a properly balanced portfolio of stocks, ETFs, mutual funds and bonds. This makes it easy for investors to identify which assets are the best fit for the strategy. Finally, TD Ameritrade also boasts an impressive investing curriculum on its website, which is suited to investors of all skill levels.

E-Trade’s analysts produce a quarterly All-Star List to highlight the top no-load funds and ETFs offered. The broker also has a tool — My Virtual Advisor — that offers free asset allocation recommendations for investors of self-directed funds, ETFs and stocks.

Best online brokers for active ETF traders

This broker offers a robust trading platform with tools geared toward the active ETF investor. The trade-off: fewer commission-free ETFs than the competition.

Time-sensitive data and timely trade execution are essential tools for active ETF traders. Interactive Brokers provides the tools to monitor real-time, minute price movements, create alerts and watch lists, and has mobile capabilities to trade on the go.

Interactive Brokers’ Trader Workstation is considered one of the best trading platforms available for active, advanced investors. It boasts a volatility lab, advanced charting, heat maps of sector and stock performance, and paper trading. Its mutual fund replicator helps users identify ETFs that replicate the performance of a selected mutual fund — a great fee-slashing feature.

Low commissions are another priority for active traders and, as previously highlighted, Interactive Brokers’ commission structure favors frequent, high-volume traders at just $0.005 per share. There are a $1 minimum trade commission and a 0.5% maximum, with exchange and regulatory fees included. Plus, volume discounts are available.

Best online brokers for socially conscious ETF investors

These brokers offer a wide range of offerings and tools for investors interested in using ETFs to build a portfolio that aligns with their values.

Some investors have strong social beliefs that they’d like to incorporate into their investment philosophy. And thanks to ETFs (and mutual funds), aligning your values with investing decisions — what’s generally referred to as socially responsible investing, or SRI — is easier than ever. Schwab and TD Ameritrade Essential Portfolios stand out here as a broker and robo-advisor that offer a robust selection of SRI-focused ETFs at reasonable costs.

Schwab boasts 70-plus such ETFs, though less than 10 of these are included in its commission-free lineup. It’s one of the best overall brokers for ETFs, so socially minded investors will find the same perks that make Schwab a best overall pick, including competitive commission prices, tools for beginners, free and extensive research, and solid trading platforms.

TD Ameritrade Essential Portfolios offers Socially Aware portfolios, made up of eight ETFs, which is among the most SRI offerings for robo-advisors. This offering is an alternative to the core portfolios, and the exact investment mix reflects the client’s risk tolerance. Investments are chosen based on “ESG” principles (ETFs comprising companies that score high on environmental, social and governance factors). The weighted average expense ratios on these portfolios are higher than the core portfolio expenses — 0.11% to 0.18% versus 0.07% to 0.08% — though still competitive by industry standards.


Best online brokers for ETFs: summary

Broker
Best
for
Highlights
Commiss-
ions
Promotion
Account minimum
Start investing
Charles Schwab
Chales Schwab
Overall +
socially conscious investing
Robust tools specific to ETF investors; 260+ commission-free ETFs;
$4.95
per trade
$100 referral award for first-time clients
$0

Vanguard

Vanguard
Overall
Low-cost investing model; extensive research; about 1,800 commission-free ETFs
$2 to $20 per trade depending on account balance
None
$0
Robinhood
Robinhood
Low cost
Easy-to-use interface; free trading app; 2,000+ commission-free ETFs
$0
per trade
Refer a friend who joins Robinhood and you both earn a free share of stock
$0
Interactive Brokers
Low cost + active ETF traders
Advanced trading tools; high-quality research; volume discounts
$0.005 per share; minimum $1 and maximum 1% of trade value; volume discount available
Lower minimum activity requirements ($3/month) for clients 25 and younger
$0
Wealthfront
Wealthfront
Hands-off investing
ETFs from 11 asset classes; offers tax-optimized direct indexing
0.25% of account balance
per year
$5,000 managed for free (for NerdWallet users)
$500
Betterment
Betterment
Hands-off investing
ETFs from about 12 asset classes; goal-setting features guided asset allocation
0.25%-0.40% of account balance
per year
Up to 1 year of free management with minimum deposit
$0
TD Ameritrade
Portfolio building
300+ commission-free ETFs; portfolio planner tool
$6.95
per trade
Trade commission-free for 60 days and get up to $600 back
$0

E*Trade

E*Trade
Portfolio
building
250+ commission-free ETFs; quarterly
analyst recommendations
$6.95
per trade; volume discounts
Up to 500 commission-free trades with deposit of $10,000 or more
$500 ($0 for IRAs)
TD Ameritrade Essential Portfolios
Tdameritrade.com-promotions
Socially conscious investing
8 ETFs in Socially Aware portfolio; investment mix reflects risk tolerance
0.30% of account balance
per year
None
$5,000

Learn more about ETFs

How do ETFs work?

ETFs allow investors to invest in a diversified selection of stocks, bonds or other investments in a single transaction. Like mutual funds, ETFs pool investor money to purchase shares of a number of different investments.

Those investments generally mimic a benchmark, like the S&P 500. Unlike with mutual funds, ETF investors don’t own the underlying assets in the fund — the ETF provider maintains ownership. Instead, ETF shareholders own a portion of the ETF itself.

ETFs are traded on an exchange, much like an individual stock, which means they can be bought and sold throughout the day. You can read more about ETFs in this explainer: What is an ETF?

How much do ETFs cost?

Like any investment, that varies. But again, as with mutual funds, ETF costs come from a couple of different directions.

  • Commissions. Because ETFs trade on an exchange, they’re subject to broker stock commissions. But many brokers — including the ones above — now have a lengthy list of commission-free ETFs that can be traded at no cost. If you’re planning to buy and sell ETFs frequently, make sure the ones you’re interested in are on that list.
  • Expense ratios. As with any fund, ETFs charge an expense ratio to pass the cost of administering the fund on to investors. The expense ratio is an annual fee, expressed as a percentage of your investment: a 1% expense ratio costs $10 a year for every $1,000 you invest in the fund. In general, because ETFs passively track a benchmark, their expenses tend to be lower than what you’d pay for an actively managed mutual fund. Take a look at average fund expense ratios so you know where your ETF stands.

How much money do you need to invest in ETFs?

That’s the beauty of ETFs — not much. Because they are traded for a share price, you don’t run into the typical mutual fund minimums, which can be $1,000 or more. You can purchase an ETF share for as little as $10 or $20 in some cases. Robo-advisors that use ETFs in their portfolios may even allow you to buy fractional shares — portions of a fund smaller than a single share.

That said, some brokers have account minimums, though there are quite a few options above that do not.

How do you trade ETFs?

To trade ETFs, you’ll need an account with an online broker. If you don’t have one, you can open one with one of the companies listed above in about 15 minutes — the whole process can typically be done online. Here’s the step-by-step of how to open a brokerage account.

Once the account is funded, you can purchase ETFs using their ticker symbol, very similar to the way you’d buy stocks. (Here’s how to narrow your options when investing in ETFs.) You’ll place an order on your broker’s website or online trading platform with the ETF’s ticker, the order type and the number of shares you’d like to purchase.

» Want more information? Read our step-by-step guide to buying an ETF.

How do you make money on an ETF?

ETFs earn a return through dividends or price appreciation — when the underlying assets go up in value, your investment in the ETF does, too. You may then be able to sell the ETF for a higher price than you paid for it, though we recommend choosing funds you can hold for the long term.

What’s the difference between an ETF and a mutual fund?

The main difference is in how these funds invest, and how they’re bought and sold. As we noted above, ETFs can be traded throughout the day, leading to the kind of price fluctuations you might see with individual stocks. They also tend to be more tax-efficient. Mutual funds are typically purchased from fund companies rather than other investors, and are priced once a day after the market has closed.

Though ETFs can be actively managed, most are passive, tracking an index. Many mutual funds are actively managed and employ a professional to pick and choose investments, which can result in higher fees.

Here’s our full comparison of ETFs and mutual funds.

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