Believe it or not, Jack Bogle, was a lone voice advocating for the benefits of low cost, diversified index fund investing when he founded The Vanguard Group in 1975. Since then, a choir of voices have echoed his message and mission to keep fees low and diversify risk.
Exchange-traded funds, or ETFs, are a form of index fund because both strive to produce benchmark returns at low cost. ETFs compare favorably to index funds because so many ETFs are commission-free.
ETFs have grown in popularity as a way to inexpensively build a diversified portfolio. Whether you want exposure to the U.S. stock market, a specific sector, such as healthcare, or international markets, ETFs are available to meet your investing needs.
How To Select An Online Broker For ETF Investing
Trading costs, ongoing operating costs, and investment selection are among the three most important criteria to consider when selecting a broker for ETF trading.
Unlike a mutual fund, which is actively managed, and designed to beat the market, an exchange-traded fund is passively managed so that it tracks a benchmark. The idea behind ETFs is not to beat the market but rather to match it no matter which way it swings, up or down.
Although mutual funds and ETFs differ in their objectives, similar factors apply when selecting a broker:
No-commissions: Competition among brokers is so fierce these days that they compete vigorously on fees, which works to your advantage.
Over the years, online brokers have dropped commissions costs to enter and exit ETFs so low that in some cases they are free. Many top brokers for ETF trading offer an extensive lineup of commission-free ETFs.
Expense ratios: The ongoing costs to manage and operate an ETF can vary significantly. Although ETFs are widely regarded as low-fee investment vehicles, not all funds stack up to expectations.
ETF Lineup: Generally, you will have access to the same stocks irrespective of which broker you choose. But ETFs are another ball game because the lineup of ETFs at one broker may differ from those available at another.
Most brokers offer ETFs by the largest issuers (Blackrock iShares, Vanguard, State Street SPDRs, Invesco and Charles Schwab) while some brokers, such as Schwab, provide a selection of proprietary ETFs too.
Tools: A broad selection of low-cost ETFs is a good starting point but how do you build a portfolio of ETFs that align with your risk profile and financial goals?
As it turns out, top ETF brokers provide tools to help you build a portfolio that matches your preferences.
Overall Best Online Brokers For ETF Investing
Vanguard and Schwab lead the pack of best online brokers for ETF traders with the best combination of low cost ETFs, tools, and investment selection.
As the pioneer of index fund investing, it is no surprise that Vanguard is among the best online brokers for ETF investors and traders.
When Jack Bogle launched the first index fund, Wall Street labeled it “Bogle’s Folly” because tracking the market – as opposed to beating it – was considered to be a foolish bet.
Time has proven Bogle had the foresight to realize few professional money managers can ‘beat the street’ and passive investing produces better results for most casual investors.
Over the years, Vanguard has become famous for its rock bottom fees. So much so, that almost all the leading robo-advisors include Vanguard funds in their portfolio selections.
Commissions: The founding philosophy at Vanguard to keep costs low and hold for the long term is reflected in its commission structure.
Unlike most brokers who discount commissions based on volume, Vanguard charges low commissions of just $7 for the first 25 trades, and then hikes the cost to $20 for additional trades. So, Vanguard penalizes you for trading more.
Another nice feature at Vanguard is its broad selection of no-commission ETFs on offer. Over 50+ commission-free ETFs are available to trade.
Account Balance Minimum: Another core philosophy at Vanguard is to make it easy and inexpensive to invest. Vanguard lives up to its goals by stipulating no account balance minimums; you can open an account with zero dollars. Of course, to invest you will need to fund the account but to get started the cost is zilch.
Expense Ratios: Expense ratios are generally low at Vanguard. At the low end is the Vanguard Total Stock Market Fund (VTI) which has an expense ratio of 0.05% and 0.17% for the Vanguard Total Stock Market Fund Investor Share Class (VTSMX).
Like Jack Bogle, Charles Schwab has earned almost mythical status in the financial world for pioneering low cost access to financial markets for retail investors.
In 1975, Schwab forged a path for discount sales of equities and, in the ensuing years, built Schwab to become the largest discount securities dealer in the United States.
Commissions: Schwab offers one of the most extensive selections of commission-free ETFs – over 200 are available to customers.
The cost to purchase other ETFs is just $4.95 per trade.
Account Balance Minimum: The account minimum is low at Schwab, but not zero as at Vanguard. Schwab requires customers to either:
- Fund an account with $1,000; or
- Commit to $100 monthly automatic deposits
Best Online Brokers For
ETF Passive Investors
Betterment and Schwab Intelligent Portfolios standout from the pack of top robo-advisors. Beyond low fees, Betterment offers tax-loss harvesting, financial calculators, and retirement guides while Schwab Intelligent Portfolios has extensive research and a broad range of asset classes with zero management fees.
If the idea of picking your own ETFs seems intimidating or you don’t have the time to research exchange-traded funds that match your risk profile and financial objectives, robo-advisors are a good option.
Robo-advisors automate investment management so you don’t need to be involved in ETF selections. After answering a few questions and depositing your funds, the robo-advisor will do the rest without you having to lift a finger.
Among the best robo advisors are Betterment and Schwab Intelligent Portfolios.
Along with Wealthfront, Betterment was one of the earliest robo-advisors and remains one of the best.
Like most other robo-advisors, Betterment builds portfolios with low-cost index funds and ETFs. Management fees range from 0.25% to 0.40% depending on whether you want a 100% automated portfolio management solution or want access to a hybrid service that includes human advice too.
Expense ratios are low at Betterment, ranging from 0.09% to 0.17%. When you compare these costs to mutual fund expense ratios that can be as much as 5x higher and more, the value Betterment provides is compelling.
SCHWAB INTELLIGENT PORTFOLIOS
Schwab has a unique advantage compared to most robo-advisors. Because Schwab has its own proprietary ETFs, it competes aggressively on price with leading robo advisors, such as Personal Capital, via its own robo-advisor, Schwab Intelligent Portfolios.
Management fees are zero because Schwab makes money from the expense ratios of its proprietary funds held in client portfolios. By offering free portfolio management, Schwab has amassed one of the largest holdings of assets under management of any robo-advisor.
Schwab Intelligent Portfolios stands out as having the broadest range of asset classes of any robo-advisor as well as extensive research.
Expense ratios are mostly in line with those charged by Betterment, ranging from 0.08% to 0.24%.
>> More: Compare The Best Robo Advisors For Fees
>> Related: Compare Wealthfront Vs Betterment
Best Online Brokers For
Low Cost ETF Investing
Robinhood makes over 5,000 stocks and ETFs available to trade at no cost via its mobile app. TD Ameritrade has over 100 commission-free ETFs and low commissions costs for ETF trading on non-commission-free ETFs.
When it comes to commissions costs, the race to the bottom among competing brokers has been a boon for fee sensitive traders and investors.
For example, TD Ameritrade offers 100+ commission-free, non-proprietary ETFs while non commission-free ETFs cost just $6.95 to enter and exit.
TD Ameritrade shines across the board, whether you are trading exchange-traded funds or want to branch out to options trading on its thinkorswim platform, as well as futures, fixed income and even forex.
You can trade stocks and ETFs via your mobile phone without paying a dime at Robinhood.
While TD Ameritrade has all the bells and whistles you might ever wish for, Robinhood is more limited in additional services but lives up to its marketing claims by providing equity and ETF trading at no cost.
If you know what you want to trade, Robinhood is tough to beat on price, but if ETF or stock research is important to you, or you want to trade other securities then TD Ameritrade is the better bet.
>> Trade options? First Read Our thinkorswim Review
Best Online Brokers
For ETF Active Traders
Interactive Brokers and Fidelity have higher account balance minimums than some rivals but offer highly capable platforms with tools, charts, real-time streaming data and watchlists for active traders.
Interactive Brokers is renowned as a leading platform for experienced and active traders. Low commissions costs, low margin rates and over 3,000 no-transaction-fee mutual funds have earned Interactive Brokers a reputation as a go-to platform for high volume, fee-conscious traders.
Active ETF traders will find a home at Interactive Brokers, which has an extensive suite of tools, including its Volatility Lab, Strategy Scanner, and Risk Navigator, plus advanced charting and streaming live data.
A minimum $1 commissions cost is charged and a maximum of 0.50% of the trade value, or $0.005 per share.
The downside of Interactive Brokers is the high account balance minimum of $10,000 – though at the end of month 8, total commissions are subtracted from the $10,000 deposit to reach the required commission minimum.
You probably know Fidelity best as an administrator of retirement plans but Fidelity has much more to offer the discerning active trader.
If you can get past the account balance minimum of $2,500, Fidelity has a suite of tools and research to rival the best brokers in the industry.
Active Trader Pro is a downloadable desktop and web-based platform that is easy to navigate and Wealth Lab Pro enables traders to customize strategies.
Whether you are looking for real-time data, price alerts, watchlists or a mobile solution, Fidelity has got you covered.
A bonus at Fidelity is if you want to allocate some of your portfolio to an automated investing solution you can do so via the Fidelity Go robo advisor.
Best Online Brokers For
ETF Traders Using Tools
E-Trade and thinkorswim offer a nice stepping stone between active ETF trading and the automated, hands-off investing approach offered by robo advisors.
The thinkorswim trading platform is about as close to trading nirvana as any platform when it comes to tools.
Whether you are looking for advanced technical chart studies to view ETFs, or you want to conduct extensive back-testing or strategy scanning, thinkorswim has a robust offering that deserves its loyal following among active traders.
thinkorswim has extensive educational resources, low commissions costs of just $6.95, and supports mobile trading too.
For ETF investors who want to add the dimension of options trading, thinkorswim supports simple and advanced strategies, including:
- Covered call options strategy
- Married put options strategy
- Collar Trade options strategy
- Bull put spread options strategy
- Bear call spread options strategy
- Credit spreads options strategy
- Debit spreads options strategy
- Bull call spread options strategy
- Bear put spread options strategy
- Ratio put backspread options strategy
- Ratio call backspread options strategy
- Iron butterfly options strategy
- Iron condor options strategy
- Straddle options strategy
- Strangle options strategy
- Combination trades options strategy
E-Trade offers a happy medium between an active ETF trading approach and an automated investing solution offered by robo advisors.
Over 100 commission-free ETFs are available at E-Trade and you can use its tools to build portfolios that match your risk profile and financial goals.
E-Trade’s My Virtual Advisor recommends the best way to allocate assets to ensure you don’t put all your eggs into one basket. For example, if you want to build a balanced portfolio of bond funds, equity funds, and emerging market funds, E-Trade helps you walk step-by-step through the process.
Summary: Best Online Brokers For ETFs
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