Best ETF Brokers for December 2023

Virtually all online brokerages offer commission-free ETF trading these days, so that's no longer the differentiator it once was. However, not every stock broker is a good place to buy and sell ETFs, either due to charging unnecessary account fees or not offering a well-rounded feature set beyond just ETFs.

Our picks of the best ETF brokers pack in $0 commissions for online ETF trades in addition to supporting other investing needs you may encounter, including investing in stocks, mutual funds, fixed income, cryptocurrencies, and fractional shares. Keep reading for our best brokers for ETF investing.

2 Featured Picks From Our Best ETF Brokers

There are a lot of options to compare, even on this page. It can be overwhelming! If you're looking for a place to start, here are two ETF brokers our experts recommend and why they like them:

• Robinhood: Standout mobile investing brokerage
• Fidelity: Great broker for fractional share ETF investing

How to pick the best ETF broker

There's no perfect answer here. The best ETF broker for you is one whose features best meet your needs.

What is an Exchange-Traded Fund (ETF)?

Exchange-traded funds, or ETFs, combine some of the advantages of mutual fund investing with the convenience and simplicity of buying stocks. If you're looking for the best ETF brokers, commission-free trading is a must. You may also want fractional shares, in-person support, and strong research products.

Like mutual funds, ETFs pool investors' money to buy a diverse portfolio of stocks, bonds, or other investment assets. This can be a great hands-off investment approach and can also give you more diversification than simply buying a portfolio of stocks.

Unlike mutual funds, however, ETFs trade on major stock exchanges, and can be bought and sold easily with the push of a button. You can buy ETFs whenever the stock market is open, and the transaction will be instantaneous.

What's more, while mutual funds typically have a minimum initial investment (often $1,000 or more), the price of ETF admission is the cost of one share of the fund. If your broker allows for fractional share investing, you can invest in an ETF with as little as $1.

The bottom line is that ETF investing can be a smart choice for many investors, especially beginners. But to buy and sell ETFs, you'll need a brokerage account. Here's our up-to-date list of the best online brokers for ETFs.

Do ETFs pay dividends?

The short answer is "sometimes." The longer version is that since ETFs generally invest in dozens, hundreds, or even thousands of individual stocks or bonds, the dividends paid by an ETF (if any) depend on those paid by the underlying investments.

In other words, if you invest in an ETF that owns a lot of dividend-paying stocks, such as an S&P 500 index fund, the ETF will make distributions of those dividends to its investors.

Are ETFs a safe investment?

It depends. Just like when you're investing in individual stocks, there is a wide spectrum of risk within the ETF world. There are ETFs that invest in short-term Treasury bonds that are about as safe as you can get. ETFs that track broad stock indices like the S&P 500 are likely to be volatile over time, but are certainly less risky than owning any one individual stock. And then there are ETFs with narrow focuses and high growth ambitions that can be rather risky investments.

What are the advantages of an ETF?

ETFs allow investors to spread their money out across a portfolio of stocks (or other investments) in a single, easy-to-trade security.

Here are the key advantages of ETF investing:

• ETFs are easy to buy and sell, as they trade on major stock exchanges.
• Unlike mutual funds, you can invest in an ETF with no minimum.
• ETFs can add diversification to a portfolio.
• ETFs can make it easy to invest in assets that would be difficult to buy and sell otherwise (like gold).

What are the disadvantages of an ETF?

No investment is perfect. There are a few potential drawbacks to ETF investing that you should be familiar with:

• ETFs have fees, known as expense ratios, that can consume a portion of your investment gains over time.
• ETFs are generally designed to match the performance of a certain index, not to outperform it.

What is the difference between an ETF and a stock?

ETFs trade on major stock exchanges, so the mechanics of buying and selling them are identical to individual stocks. But the biggest difference between ETFs and stocks is that ETFs generally represent more than one underlying stock, bond, or other asset. For example, an S&P 500 ETF invests your money in all 500 companies that make up the index.

What is the difference between an ETF and a mutual fund?

ETFs and mutual funds are very similar in a lot of ways. They both allow investors to put their money to work in many different stocks or bonds in a single investment, and both can allow people who don't have the time, knowledge, and desire to buy individual stocks to benefit from the long-term potential of the stock market.

However, there are some key differences:

• Mutual funds don't trade continuously on stock exchanges. They price once per day, after the market closes. So, if you invest, you'll pay whatever price is in effect at the end of the day.
• Mutual funds generally have minimum investments, while ETFs don't (aside from the cost of a single share).
• Many brokers -- especially app-based brokers -- don't offer mutual fund investments. But every broker that offers stock trading allows customers to buy and sell ETFs.

How do you choose a good ETF?

At the time of writing, there are more than 2,000 ETFs listed on major U.S. exchanges. So it would be far too time consuming for you to research and compare all of them.

With that in mind, here are some suggestions to help you understand how to invest in ETFs and narrow down your search.

Should you use an active or passive ETF?

ETFs fall into two main categories -- active and passive. An active ETF (also called "actively managed") is one that employs a fund manager or managers to construct a portfolio. For example, the Global X FinTech ETF invests in financial technology stocks that its managers believe will deliver superior returns for investors.

A passive ETF is one that aims to track a benchmark index. For that reason, it's also referred to as an index fund. For example, the Vanguard S&P 500 ETF buys all 500 stocks in that index in weightings that match the index's performance over time.

Here's the key point: The goal of index ETF investing is to match the performance of a certain benchmark. The goal of active ETF investing is to beat the performance of a benchmark. Active ETFs tend to have higher fees and don't always beat the market, but that's the goal.

What are your goals?

Your personal investment goals should play a role in your ETF selection. Is growth your main priority? Maybe look at a Nasdaq index fund or another that invests in fast-growing companies. Are you more concerned with income? Maybe a high-paying ETF like the Vanguard High Dividend Yield ETF could be a good fit. Looking to preserve capital at all costs? A bond ETF like the iShares Core Total U.S. Bond Market ETF could work well.

The right answer for you might be a combination. In fact, many advisors recommend a combination of stock and bond ETFs, in proportions that make sense for the investor's age and risk tolerance. Check out this introduction to asset allocation to learn more.

Know what to avoid with an ETF

Most investors want to avoid certain types of ETFs at all costs. These are inverse ETFs and leveraged ETFs. We'll get into these in more detail later on, but the general idea is that these are relatively complex financial instruments that are better suited for short-term traders and speculators, not long-term investors.

Compare the costs

You probably wouldn't buy a new TV without shopping around for the best deal, and the same logic applies to ETF investing. Why would you buy an S&P 500 index fund with a 0.40% expense ratio when there are some with 0.03% expense ratios (we'll discuss what this means in a bit) that do the exact same thing?

Now, you might notice that actively managed ETFs tend to have higher expense ratios. That's because they have to pay portfolio managers to select investments. But even then, it's tough to make the case for paying any expense ratio much above 0.8%.

As a final thought on ETF selection before we move on, it's also important to mention that if you don't want to choose individual ETFs, check out our best robo-advisor list. These are services (many offered by the best stock brokers) that do the hard work of creating an ETF portfolio for you.

How much do ETFs cost?

There are two potential costs associated with ETF investing: commissions and expense ratios. So, let's take them one at a time.

Understanding ETF commissions

Virtually all brokers have done away with stock trading commissions. Since ETFs trade just like stocks on major exchanges, ETFs are commission free at most of the best stock brokers, including all the picks in this article.

To be perfectly clear: All the best ETF brokers allow you to buy any ETFs you want with no trading commissions. Under no circumstances should investors pay commissions to buy and sell ETFs in 2021.

Understanding ETF expense ratios

The other type of fee associated with ETF investing is expense ratios. This is the ongoing cost of investing in an exchange-traded fund.

An ETF's expense ratio is the fee that covers the fund's operating expenses. This includes paying the fund's managers, administrative costs, and other costs of doing business. It is expressed as a percentage of the fund's assets on an annual basis. For example, an expense ratio of 0.30% implies that for every $10,000 you have invested in an ETF, $30 of your money will go toward fees that year.

While commissions on ETF trading are largely a thing of the past, you will have to pay expense ratios. For passive (index) ETFs, these generally range from 0.03% to about 0.4%. For actively managed ETFs, it's common to see expense ratios in the 0.5% to 1.5% range. All things being equal, lower expense ratios are preferable, so if you have your eye on a specific ETF, be sure there isn't another one that does essentially the same thing with a lower cost structure. (Note: It's especially important to compare expense ratios for index ETFs, because ETFs that track the same index have the exact same investment strategy.)

Minimum investments in an ETF

Unlike mutual funds, ETFs don't have minimum investment requirements. In practical terms, the minimum investment requirement in an ETF is the cost of a single share, but many brokers allow investors to buy fractional shares of stocks (including ETFs). This can make the minimum investment to get started in a particular ETF as little as $1.

How do you buy and sell ETFs?

This section will be short and sweet. ETFs are easy to buy and sell, especially with the best brokers for ETFs. This is especially true if you've ever bought and sold stock.

To buy shares of an ETF, add funds to your brokerage account. Then, enter the ETF's ticker symbol into the order box on your broker's platform, along with the number of shares you want to buy. Then, click the "buy" button. It's that easy.

To sell an ETF you own, simply enter the ticker symbol and number of shares, and hit "sell." As long as the stock market is open (9:30 a.m. to 4 p.m. ET most weekdays), the transaction will occur immediately.

What are leveraged and inverse ETFs?

Inverse ETFs essentially allow investors to bet against a certain index. For example, an inverse S&P 500 ETF would aim to deliver the opposite returns of that index on a daily basis. So, if the S&P 500 goes down 1% tomorrow, an inverse S&P 500 ETF would go up 1% (in theory).

Leveraged ETFs are designed to multiply the returns of a benchmark. So, a 2x leveraged S&P 500 ETF would rise 2% on days when the S&P 500 rises by 1%.

Without getting too far into the weeds, these complex financial instruments are intended as short-term investments, not as long-term ways to amplify the market's returns. They are best left to experienced short-term traders.