11 Best Online Brokers for ETF Investing of May 2024 - NerdWallet (2024)

• Over 60 investment account providers reviewed and rated by our expert Nerds.

• More than 50 years of combined experience writing about finance and investing.

• Hands-on testing of the account funding process, provider websites and investment platforms.

• Dozens of objective ratings rubrics and strict guidelines to maintain editorial integrity.

To see our full methodology and learn more about our process, read our criteria for evaluating brokers and for evaluating robo-advisors.

• Over 60 investment account providers reviewed and rated by our expert Nerds.

• More than 50 years of combined experience writing about finance and investing.

• Hands-on testing of the account funding process, provider websites and investment platforms.

• Dozens of objective ratings rubrics and strict guidelines to maintain editorial integrity.

To see our full methodology and learn more about our process, read our criteria for evaluating brokers and for evaluating robo-advisors.

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. 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?

All investments carry risk, and ETFs are no exception. But, since ETFs have built-in diversification, similar to mutual funds, risk is generally lower than it is in trading any one company stock or bond. Still, most ETFs mirror an underlying asset or index, which can rise and fall in value depending on market conditions.

Other risks include the liquidity of the fund (that is, how easily you can buy or sell the ETF) and the potential for the fund to close down.

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

Because ETFs trade on an exchange, they can be subject to broker stock commissions. But many brokers allow you to buy or sell ETFs with no commission.

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.

ETFs combine the flexibility of stock trading with the instant diversification of mutual funds. As most ETFs are passively managed — tracking a benchmark index rather than trying to beat market returns — management fees are on average about one-third lower than that of actively traded mutual funds. Costs are transparent, and the value of the fund’s holdings are reported at the end of each day (as opposed to monthly or quarterly for mutual funds).

ETFs often are more tax-efficient than mutual funds because they typically draw lower capital gains taxes. Investors might pay only upon the sale of the ETF, whereas mutual fund investors can incur capital gains taxes throughout the life of the investment.

Most ETFs are passively managed, meaning they try to track an underlying asset, like a basket of stocks like the S&P 500 or a commodity like gold, which may be turnoff for investors who prefer active management. Also, while costs are generally lower for ETFs, they can vary from fund-to-fund (even ETFs tracking the same index).

Like stocks, ETFs are traded on exchanges like the New York Stock Exchange (hence the name, exchange-traded funds). But unlike a stock, which buys assets in one publicly traded company, an ETF tracks an index, a basket of securities, bonds or other assets.

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. 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.

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.

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. Read our step-by-step guide to buying an ETF.

Yes — if the portfolio owned by the ETF includes equities such dividend-paying stocks. These can be paid monthly or on some other time frame, depending on the ETF. If you're interested in this type of income, view our list of the best dividend ETFs.

Yes, you can use dividends to acquire more shares in the same ETF, but there may be commissions for reinvesting dividends. Check with your brokerage to learn more.