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How to Buy an ETF in an Hour or Less

Sept. 11, 2017
Investing, Investing Strategy, Investments
how to buy ETF
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It’s easy to spend hours engrossed in social media, going down internet rabbit holes or binge-watching TV shows — and yet, planning for your financial future? Not a minute to spare!

Fear not, however. You don’t need an abundance of time or money to begin investing for retirement, and the cornerstone of a diversified portfolio can be just one exchange-traded fund (ETF). With an entire basket of securities a click of a button away, why put off until tomorrow what you can easily do today? (Don’t know this term? Learn all about ETFs.)

Here’s how to buy your first ETF in less time than it takes to eat dinner at your favorite restaurant.

1. Set the table

First, we’re going to make a significant assumption: You already have an account with an online broker where you can buy and sell securities. (Not so? Learn about brokerage accounts and how to open one.)

ETFs are standard offerings among the major brokers, but confirm you can buy them in your account. Selecting individual ETFs often won’t be an option with most robo-advisors; rather, their model is to automate the investment process on your behalf.

If you want to see how brokerages compare for matters related to ETFs, consult NerdWallet’s analysis of the best brokers for ETF investors.

2. Explore the menu

Time to decide what you’d like to order. Whether you have a hankering for particular funds or don’t know where to begin, there are ways to narrow your ETF options.

For first-time buyers, a low-cost index fund is an easy way to get a big slice of the market with little effort. These ETFs track an index, like the Standard & Poor’s 500, providing diversification without the hassle of buying numerous individual stocks. For those who want to peruse options, use the robust screening tools offered by brokerages 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 more than 2,000 funds listed in the U.S. alone, so chances are there are competing products even if you have a specific ETF in mind. Comparison tools on your broker’s website can reveal how similar funds stack up on the following characteristics:

  • Administrative expenses. Also known as expense ratios, these expenses cut into profit, so lower is better (as reference, the average expense ratio shareholders paid in 2016 was 0.23%).
  • Commission fees. These trading fees vary by brokerage — and even by ETF — but generally range from about $5 to $7. Many companies offer numerous commission-free ETFs.
  • 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 (aka individual companies) in the fund.
  • Performance. You know the saying — “past performance doesn’t indicate future returns” — but it still can be useful to see how funds’ performance histories compare.
  • Trading prices. ETFs trade like stocks; you’ll be able to see current prices, which dictates how many shares you can afford to buy.

3. Place your order

When dining out, you order a desired dish by name. When investing, you order an ETF using its ticker symbol (a unique identifier). Once you navigate to the trading section of your brokerage’s website, the process for buying ETFs is very similar to the process for buying stocks. Here are the basics you’ll need to know:

Ticker symbolThe unique identifier for the ETF you want to buy. Be sure to check you have the correct one before proceeding.
PriceThe current trading price is determined by:
  • Buyers offer a “bid,” or the highest price they’re willing to pay
  • Sellers have an “ask,” or the lowest price they’ll take in exchange
Number of sharesThe number of shares you wish to buy.
Order typeThese 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
CommissionPrice per trade the brokerage will charge for its service.
Funding sourceThe bank account linked to your brokerage account — be sure it has sufficient funds to cover the total cost.

Before you execute your order, you’ll have an opportunity to double-check that everything’s correct. Don’t rush; even professional investors who buy and sell securities every day can make mistakes.

Make sure your order is set up as intended: Double-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 by simply typing it into Google.

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