Exchange-traded funds have burst onto the investing scene with a vengeance. They've made it easier than ever to put together a portfolio that's perfectly balanced to meet your investment goals. And even better, many brokers and ETF providers have teamed up to offer commission-free ETFs for their customers.
But when with so many brokers jumping onto the free-ETF bandwagon, it can be hard to figure out where you'll find your favorite ETF. So to make things a little easier, you'll find below a cheat sheet to identify the most popular commission-free ETF programs available.
Schwab was the first broker to offer commission-free ETFs, and over the past two years, the company has broadened its lineup of proprietary ETFs. Now, you can buy 14 Schwab ETFs that cover U.S. and international stocks as well as bond funds tracking U.S. Treasuries and the Aggregate Bond index. They also come with rock-bottom expense ratios that compare favorably with most ETF providers and rival or even beat Vanguard's notoriously low costs.
Fidelity was the first broker to go beyond proprietary ETFs to offer an outside lineup of funds. Partnering up with iShares, the top ETF provider by assets under management, Fidelity offers 30 iShares ETFs covering a range of asset classes, including the popular iShares DJ Select Dividend
Vanguard went the proprietary route with its extensive ETF family, which has many more choices than Schwab. With broad-market funds covering U.S. and international stocks to dividend ETFs like Vanguard Dividend Appreciation
This discount broker chose its own path by creating a multi-family selection of more than 100 ETFs, taking the best of the best from several fund providers, including Vanguard, iShares, and the SPDR line of ETFs, among others. By choosing not to focus on any one ETF provider, TD AMERITRADE gives its customers the ultimate a la carte menu of ETFs.
Scottrade came into the free-ETF realm somewhat late to the game, but it made a powerful partnership with fund research giant Morningstar to offer 15 Focus Morningstar ETFs. For now, the ETFs are limited to broad-market and sector-specific domestic stocks, but their rock-bottom fees challenge other low-cost providers.
This low-cost discount broker caters to active traders, and its commission-free ETFs reflect that. Its partnership with FactorShares to offer its long-short ETFs is tailored to investors who want to take two positions simultaneously. In addition, it also offers Global X ETFs that cover everything from silver miners to Colombian stocks.
The strategy that Firstrade chose for its ETFs was simple: Choose a small number of very valuable funds. The result was a menu of 10 free ETFs from iShares, Vanguard, and PowerShares that include stock, bond, and commodity ETFs. You don't have the same selection that you get from TD AMERITRADE, but you do have a wide enough selection to put together a reasonable asset allocation for your portfolio.
Making the right choice
Given the speed with which brokers have added commission-free ETF offerings, it's entirely possible that I've missed some. But what's clear is that investors have a huge range of brokers to choose from if they want to cut costs on their ETF investing. That can be extremely valuable, especially for those who like to add to their ETF positions regularly as they save small portions from each paycheck.
Choosing a broker is about much more than simply finding the right slate of commission-free ETFs. In many cases, you may well be happier paying a small commission with a broker that gives you the other services you want rather than using a commission-free ETF broker that doesn't match up with your overall investing needs. But in your quest for a perfect brokerage company, free ETFs certainly play an increasingly valuable role.
If you're passionate about ETFs, you'll want to read the Motley Fool's free special report on ETFs. You'll get three great ETF ideas along with useful commentary and much more.