What fees are associated with ETFs?

ETFs have management and investment fees that are combined into the fund's expense ratio. A fund's expense ratio equals the fund's costs divided by its average assets. For example, an expense ratio of 1% means that you'll have $10 in annual investment fees for every $1,000 you invest. To be clear, this isn't a fee you'll have to pay -- it will be reflected in the ETF's performance over time.

How much money should I invest in ETFs?

There's no one-size-fits-all ideal allocation to ETFs. If you prefer to keep your investing on autopilot and don't have the time, knowledge, or desire to research individual stocks, there's nothing wrong with having all of your portfolio substantially in various ETFs. On the other hand, if you prefer to play a more active role, ETFs can be a smaller portion of your investment assets.

What is an ETF's expense ratio?

An ETF's expense ratio is the percentage of your investment in the fund that is deducted annually as fees. A fund's expense ratio equals the fund's operating expenses divided by its average assets. To be clear, this isn't a fee you'll have to pay -- it will be reflected in the ETF's performance over time.

What is the 3-5-10 rule for ETFs?

The 3-5-10 rule (also known as the 3-5-10 limits) is a regulatory guideline for ETFs and other investment funds that restricts the amount they can own in another fund's voting shares. The breakdown is:3% limit: A fund can't acquire more than 3% of the outstanding voting shares of another registered investment company.5% limit: It can't invest more than 5% of its total assets into a single registered investment company.10% limit: A fund can't invest more than 10% of its total assets in all other registered investment companies.

How long should you hold your ETFs?

You should aim to hold most ETFs for the long term. These funds are long-term investment vehicles that typically hold a diversified group of stocks, bonds, or other assets. A good rule of thumb is to sell an ETF only if you want to invest the money in a higher-performing or lower-risk fund or if you need the money for something else, such as a down payment on a house or retirement.

Do ETFs provide diversification?

Many ETFs provide some form of diversification. Some ETFs hold a wide selection of stocks, while others provide diversification across different stock types, such as dividend, value, or growth stocks. However, not all ETFs provide diversification. Some thematic funds hold stocks exclusively in a specific sector, such as energy or technology, while others invest solely in a single asset, like a particular stock or a gold-based asset class.

How is an ETF different from a mutual fund?

The primary difference between a mutual fund and an ETF lies in how they are traded. ETFs trade like stocks on an exchange throughout the trading day. Mutual funds typically only price once a day, usually at market close. Other differences include liquidity (it's easier to buy and sell ETFs than mutual funds), fees (some ETFs charge higher fees), and investment minimums (some mutual funds require a minimum investment).

Which ETF is best for beginners?

There are plenty of beginner-friendly ETFs. Some examples include S&P 500 index funds, such as the Vanguard S&P 500 ETF (VOO). There's also the Invesco QQQ Trust, which tracks the Nasdaq-100 index and trades under the ticker QQQ.

How much do I need to invest in ETFs to get $1,000 a month?

The investment amount needed depends on the dividends paid by the ETFs you want to buy. As a basic example, consider that the Vanguard High Dividend Yield ETF (VYM) has paid $3.51 per share in dividends over the past year. To get $1,000 per month in income, or $12,000 per year, you'd need approximately 3,419 shares. Based on the recent price of $156.81 per share, as of May 5, this would require an investment of about $536,133. But this can vary widely depending on the particular ETFs and the timing of your purchase.

Best ETFs for Beginners and How to Invest

By Matthew Frankel, CFP – Updated Jul 3, 2026 at 7:44 AM EST | Fact-checked by Frank Bass

Key Points

ETFs offer a simple way to invest in a diversified portfolio through a single transaction.
Shares in ETFs are bought and sold like stocks, providing flexibility and ease of trading.
Investing in ETFs can result in lower costs and minimal effort compared to other forms of investment.

Exchange-traded funds (ETFs) are an easy way to begin investing. They are fairly simple to understand and can generate impressive returns over the long term with minimal expense and effort. They are also easy to buy and sell. Here's what investors should know about ETFs, how they work, and how to invest in them.

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An infographic defining and explaining the term exchange-traded fund (ETF). — Image source: The Motley Fool.

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What is an ETF?

An ETF allows investors to purchase a diversified portfolio of stocks or bonds in a single transaction. People buy shares in ETFs, and the money is invested toward a specific objective. For example, if you buy an S&P 500 ETF, your money will be invested in the 500 companies in the S&P 500 index. As a result, your investment's performance should roughly match the index's over time.

How to start investing in ETFs

Open your brokerage: Log in to your brokerage account where you manage your investments.
Search for the ETF: Enter the ticker or ETF name into the search bar to bring up the ETF's trading page.
Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this ETF.
Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
Submit your order: Confirm the details and submit your buy order.
Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.

ETFs vs. mutual funds

One common question is how ETFs differ from mutual funds, since their basic principles are the same. The key differences between these two types of investment vehicles have to do with how you buy and sell them.

Mutual funds are priced once daily, and you typically invest a set dollar amount, such as $1,000.
Mutual funds can be purchased through a brokerage account or directly from the issuer.
ETFs trade just like stocks on major exchanges such as the New York Stock Exchange (NYSE) or the Nasdaq stock exchange.
Instead of investing a specific dollar amount in an ETF, you simply buy shares of the ETF like you would buy shares of any stock.
ETF share prices continuously fluctuate throughout the trading day.

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A chart comparing ETFs and mutual funds. — Image source: The Motley Fool.

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Understanding ETF taxes

If you buy ETFs in a standard brokerage account (i.e., not a retirement account), you should know that they could result in taxable income. Any gains you make from selling an ETF will be taxed according to capital gains tax rules, and any dividends you receive will likely be taxable as well.

Of course, if you invest in ETFs through an individual retirement account (IRA), you won't have to worry about capital gains or dividend taxes. In a traditional IRA, money in the account is considered taxable income only after it is withdrawn, while Roth IRA investments aren't taxable at all in most cases.

Pros and cons of ETFs

Let's examine the pros and cons of investing in ETFs.

Pros:

ETFs offer exposure to a diverse range of stocks, bonds, and other assets, typically at a low expense.
ETFs eliminate the guesswork from stock investing. Many ETFs are index funds, which enable investors to track the performance of a specific benchmark index over time.
ETFs are more liquid (i.e., easy to buy and sell) than mutual funds. Online brokers make it easy to buy or sell ETFs instantly with a simple click of the mouse.
It can be extremely complicated to invest in individual bonds on your own, but a bond ETF can make the fixed-income portion of your portfolio very easy.

Cons:

Since ETFs own a diverse assortment of stocks, they don't have quite as much total return potential as individual stocks.
ETFs are often low-cost, but they aren't free. If you buy a portfolio of individual stocks on your own, you won't have to pay management fees.

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10 of the best ETFs for beginners

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Ticker Information Table
Company name	Current price
Vanguard S&P 500 ETF	$682.21
Schwab Strategic Trust - Schwab U.s. Mid-Cap ETF	$34.79
Vanguard Russell 2000 ETF	$118.23
Schwab International Equity ETF	$26.86
Schwab Strategic Trust - Schwab Emerging Markets Equity ETF	$35.46
Vanguard High Dividend Yield ETF	$159.41
Schwab Strategic Trust - Schwab U.s. REIT ETF	$24.50
Schwab Strategic Trust - Schwab U.s. Aggregate Bond ETF	$22.90
Vanguard Scottsdale Funds - Vanguard Total World Bond ETF	$67.76
Invesco QQQ Trust	$696.06

Data as of Jul 20, 2026. Showing 10 of 10 total entries.

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Vanguard S&P 500 ETF (VOO -0.14%): Large U.S. companies (The S&P 500 is often regarded as the best benchmark for the overall U.S. stock market).
Schwab U.S. Mid-Cap ETF (SCHM -0.57%): Midsize U.S. companies between the S&P 500 and the Russell 2000 in terms of size.
Vanguard Russell 2000 ETF (VTWO -0.56%): Smaller U.S. companies (The Russell 2000 is the most widely followed small-cap index).
Schwab International Equity ETF (SCHF -0.56%): Larger non-U.S. companies.
Schwab Emerging Markets Equity ETF (SCHE +0.28%): Companies from countries with developing economies, also known as emerging markets.
Vanguard High-Dividend Yield ETF (VYM -0.47%): Stocks that pay above-average dividends, mostly large-cap stocks.
Schwab U.S. REIT ETF ( ) , which own properties and tend to pay .

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Expert Q&A

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Expert Q&A on ETFs

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Beginner investing in ETFs: FAQ

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About the Author

Matt Frankel, CFP®, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

TMFMattFrankel

@MattFrankelUSC

Matt Frankel, CFP has positions in Vanguard Russell 2000 ETF and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends BlackRock, Vanguard High Dividend Yield ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Best ETFs for Beginners and How to Invest

Key Points

What is an ETF?

How to start investing in ETFs

ETFs vs. mutual funds

Understanding ETF taxes

Pros and cons of ETFs

Pros:

Cons:

10 of the best ETFs for beginners

Related investing topics

7 Best ETFs to Buy in July 2026

ETF vs. Index Fund: What's the Difference and Which Should You Choose?

Best ETFs for Long-Term Growth

The Largest ETF Issuers

Expert Q&A

Expert Q&A on ETFs

Dr. A. Seddik MezianiProfessor of Accounting and Finance at Montclair State University

Dr. A. Seddik Meziani

Beginner investing in ETFs: FAQ

About the Author

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7 Best ETFs to Buy in July 2026

ETF vs. Index Fund: What's the Difference and Which Should You Choose?

Best ETFs for Long-Term Growth

The Largest ETF Issuers

Expert Q&A on ETFs

Dr. A. Seddik MezianiProfessor of Accounting and Finance at Montclair State University

Dr. A. Seddik Meziani

Beginner investing in ETFs: FAQ

What is an ETF?

How to start investing in ETFs

ETFs vs. mutual funds

Understanding ETF basics

How ETFs work

10 of the best ETFs for beginners

Related investing topics

Expert Q&A

What fees are associated with ETFs?

How much money should I invest in ETFs?

What is an ETF's expense ratio?

What is the 3-5-10 rule for ETFs?

How long should you hold your ETFs?

Do ETFs provide diversification?

How is an ETF different from a mutual fund?

Which ETF is best for beginners?

How much do I need to invest in ETFs to get $1,000 a month?

Understanding ETF taxes

Pros and cons of ETFs

Pros:

Cons:

Common ETF investing mistakes

Criteria to choose an ETF

Strategies for investing in ETFs

Let your ETFs do the hard work for you