What is an ETF?
An exchange-traded fund (ETF) is a basket of investments, made up of assets such as stocks or bonds, that lets you invest in many securities at once.
ETFs are generally passively managed, meaning they track an existing index, rather than a portfolio manager picking investments for the fund. Passively managed funds typically have lower fees and tend to outperform actively managed funds.
There are many characteristics of ETFs that make them a popular choice for beginner investors, but as with any investment, ETFs aren’t a one-size-fits-all solution. You'll want to evaluate how an ETF fits into your portfolio before clicking "buy."
Advantages of ETFs
1. Diversification: Since ETFs pool many companies into one investment, they allow you to diversify your portfolio with the click of a button. It would take a lot of money and effort to achieve the same diversification by picking individual stocks.
2. Transparency: Anyone with internet access can search the price activity for a particular ETF on an exchange, and a fund’s holdings are disclosed to the public each day. This transparency allows you to keep a close eye on what you're invested in.
3. Tax benefits: ETFs only incur capital gains taxes when you sell the investment, and you get to decide when to sell an ETF, making it easier to avoid short-term capital gains tax rates. Actively managed mutual funds don't have these advantages.
The Nerds did some digging...
🔍 In a recent analysis, we found 19 ETFs that are highly diversified, but don't have more than 5% concentration in any one company. Why does this matter? Because many ETFs that track major indexes have high concentrations in a few companies. We wrote more about this concern in our article here, which covers ways to invest in the S&P 500 but avoid certain companies.
How to invest in ETFs
Investing in ETFs takes just a few steps. First, you’ll need a brokerage account. Then, using a screener tool, you can find a low-cost ETF that suits your goals. Once you’ve found the right fund, just place the trade and monitor your investment.
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, we have an article on how to open a brokerage account. 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 takes about 15 minutes.
Of the brokers NerdWallet reviews, the following score highest in our analysis of the best brokers for ETF investing.
What if I'd rather have someone else do the work of investing?
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 specific ETFs, but that’s part of their appeal — the robo-advisor picks investments for you. (Here’s our list of the top robo-advisors.)
2. Choose ETFs with screening tools
Now that you have your brokerage account, it’s time to decide which 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 ETFs by various criteria. There are thousands of ETFs listed in the U.S. alone, so screeners are key for finding the ETFs you’re looking for. Try using the criteria below in your brokerage’s screener to narrow them down.
Administrative expenses
Also known as expense ratios, these expenses cut into profit, so the lower the better. According to the Investment Company Institute, the average expense ratio for equity index ETFs is 0.14%. This could be a good range to start with in your screener, but some popular ETFs have expense ratios lower than this.
Commissions
These are fees you pay per transaction when you buy or sell an ETF. Commissions are rare at most major online brokers, but it’s good 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 fund's top holdings, which are the individual companies it invests in.
Performance
While past performance doesn’t indicate future returns, it can still be useful to compare the history of similar funds. Look at a fund's long-term track record, like its three-, five- or 10-year performance, 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 dictate how many shares you can afford to buy.
Asset class
Stocks and bonds dominate ETF holdings. But some funds are composed of commodities, currencies, alternative investments, a combination of asset types, etc.
Geography
Some ETFs hold global investments. Others focus on specific regions, countries and even individual states.
Segment
This is a way to categorize the assets that make up an ETF’s holdings. For equity-based funds, think company size or industry. For fixed-income ETFs, think corporate, municipal or government bonds.
Investment style
ETFs can be a useful way to express a specific investment strategy. Examples include aligning investments with your values or investing in an actively managed fund.
3. Place the trade
The process of buying ETFs is very similar to 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.
Before you execute your order, you’ll have an opportunity to make sure everything is correct. Double-check the ticker symbol, order type and that you haven’t made a potentially costly typo with any numbers.
Need a primer on basic terms?
Ticker symbol: The unique identifier for the ETF you want to buy. For example, the ticker symbol for the Vanguard S&P 500 ETF is "VOO."
Order type: These basic order types should suffice, though additional options may be available.
Market order: Buy ASAP at the best available price.
Limit order: Buy only at a specified price (or lower).
Stop order: Buy once a specified price (the stop price) is reached, executing the order in full.
Stop-limit order: When the stop price is reached, the trade becomes a limit order and is filled at the specified price.
4. Sit back and relax
Congratulations, you’ve just bought your first ETF. These funds can help lay the foundation for a well-diversified portfolio and serve as the first step toward a long-term investment in the markets. There’s no need to compulsively check how this ETF (or your other investments) is performing. But when you want to look up that information, you can check the ticker symbol on your brokerage’s website or even just type it into Google.
The best ETFs
Investing isn't one-size-fits-all, so the best ETF for you depends on your goals for the money and your current portfolio makeup. But if you're just getting started in your investing journey and are focused on the long term, most experts will give you the same advice: consider getting exposure to a large pool of U.S. stocks and adding in a smaller portion of bonds for a cushion against volatility. You may also choose to get exposure to international markets for added diversification.
Our lists of the best ETFs reflect this guidance, featuring ETFs tracking the S&P 500, international markets and the bond market. We filtered through hundreds of ETFs and chose ones that have the lowest expense ratios, at least $5 billion in assets and a gold Morningstar medalist rating.
S&P 500 ETFs
There are many ETFs that track the S&P 500 in different ways — sometimes a fund tracks a specific sector in the index, other times it may alter the index's weightings — but the ETFs on our list track the entire index.
Fund name | Expense ratio |
|---|---|
State Street SPDR Portfolio S&P 500 ETF (SPYM) | 0.02% |
iShares Core S&P 500 ETF (IVV) | 0.03% |
Vanguard S&P 500 ETF (VOO) | 0.03% |
State Street SPDR S&P 500 ETF Trust (SPY) | 0.0945% |
Source: Morningstar. Data is current as of Oct. 7, 2026, and is for informational purposes only. | |
A word from the Nerds: You may have noticed that State Street has two ETFs that track the S&P 500, SPY and SPYM. Their makeups are essentially identical, so what's the difference?
Mainly price and volume. SPYM is a newer fund with lower assets under management, and it's cheaper than its older and larger counterpart, SPY. A larger fund may matter more for active traders (it can mean more liquidity and higher trading volume), but long-term investors may benefit from choosing the fund with the lower expense ratio.
International ETFs
Some international ETFs track emerging markets and some track developed markets, but the ones on our list track both.
Fund name | Expense ratio |
|---|---|
Vanguard FTSE All-World ex-US ETF (VEU) | 0.04% |
Vanguard Total International Stock ETF (VXUS) | 0.05% |
iShares Core MSCI Total International Stock ETF (IXUS) | 0.07% |
Source: Morningstar. Data is current as of Oct. 7, 2026, and is for informational purposes only. | |
Bond ETFs
To arrive at our list of the best bond ETFs, we filtered for funds that track the broad U.S. bond market — not specific subsets like corporate or municipal bonds. Since all of our picks have 0.03% expense ratios, we've ordered them by fund size below.
Fund name | Expense ratio |
|---|---|
Vanguard Total Bond Market ETF (BND) | 0.03% |
iShares Core U.S. Aggregate Bond ETF (AGG) | 0.03% |
Schwab U.S. Aggregate Bond ETF (SCHZ) | 0.03% |
State Street SPDR Portfolio Aggregate Bond ETF (SPAB) | 0.03% |
Source: Morningstar. Data is current as of Oct. 7, 2026, and is for informational purposes only. | |
Explore more categories of ETFs
While our lists of best ETFs above cover the basics, there are many kinds of ETFs on the market that can expose your portfolio to different assets and markets.
Here's a list of pages that show the best-performing ETFs in various categories →
The best-performing ETFs by category
Use the dropdown menu to see the best-performing ETFs for assets like gold and Bitcoin.
How do ETFs compare with other investments?
Article sources
- 1.Investment Company Institute. Trends in the Expenses and Fees of Funds, 2024. Accessed Mar 19, 2026.
