Best ETFs to Buy Right Now

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In contrast to mutual funds, the best ETFs are generally known for their low fees. Ultimately, investors have flocked to ETFs in recent years (they actually arrived “on the scene” in 1993 as little-known investment options) but they’ve now become a big deal because of low costs, tax savings advantages and solid performance, as well as the fact that they’re usually centered around tracking a benchmark index.

Why is the benchmark index important? A benchmark will compare how well a fund is doing compared to its “peers,” so it gives you a point of reference for evaluating a particular fund’s success or performance.

Best ETFs to Buy

Benzinga has compiled a list of a few of the best ETFs, and they include the following:

What are ETFs?

An exchange-traded fund, or ETF, is traded on a major stock exchange and is an investment vehicle for investors to own shares of multiple securities using a single investment. An ETF contains assets such as stocks, commodities or bonds. In general, ETFs also trade commission-free.

They’re usually also less risky because they contain a collection of stocks and bonds, ensuring diversification. In addition, professional fund managers manage the fund for you so you don’t have to waste time and effort putting together your portfolio.

Be aware, however, that exchange-traded ETFs could carry with them an element of risk. For example, leveraged ETFs have been created to multiply the daily returns of an index or asset class, which brings about more risk than others which simply track an index.

How to Choose ETFs

Your personal financial goals should be a major consideration in your decision to invest in an ETF. What is your time horizon?

When will you need your money? What is your investing style? Financial situation? Knowing the answer to these questions will help you make pointed decisions regarding the ETF(s) you’ll choose and also help you devise a consciously diversified portfolio.

Vanguard has a handy tool to help you determine in which ones you’ll want to invest. Check out Vanguard’s asset allocation tool/investor questionnaire.

Pros and Cons of ETFs

Pros:

Diversification

ETFs (Exchange-Traded Funds) provide quick diversification because they usually contain a mix of different securities, which lowers the risk associated with investing in just one asset. This enables investors to distribute their risk among various sectors and securities with one transaction.

Lower Costs

ETFs typically have lower expense ratios than mutual funds, making them a more affordable investment choice. Furthermore, many ETFs do not come with sales loads, which helps keep investment costs down.

Liquidity

ETFs are traded on stock exchanges similar to individual stocks, allowing them to be bought and sold during the trading day at market prices. This offers investors considerable liquidity and the opportunity to respond swiftly to market fluctuations.

Tax Efficiency

ETFs tend to be more tax-efficient compared to mutual funds because of their distinct structure. They usually have lower capital gains distributions for investors, which results in reduced tax liabilities and better tax treatment for those investing over the long term.

Transparency

Many ETFs regularly share their holdings, giving investors a clear view of the assets involved. This openness assists investors with making informed choices about their investments and enhances portfolio management.

Cons:

Management Fees

ETFs typically have lower expense ratios than mutual funds, but they also come with management fees that can reduce overall returns. Investors need to take these costs into account, as ongoing fees can greatly impact long-term gains.

Trading Costs

Buying ETFs comes with brokerage fees and trading spreads, especially for investors who trade often. This can raise transaction costs for those who frequently buy and sell.

Market Risks

ETFs, like other investments traded on stock exchanges, face market risks. This means there can be price fluctuations and volatility, which could result in losses for investors if they sell during a market decline.

Tracking Error

ETFs are designed to mirror the performance of an index, but they might not fully match it because of things like management fees, trading costs, and other operational expenses. This discrepancy can lead to a difference in performance between the ETF and the index it tracks.

Limited Control Over Holdings

Investors in an ETF do not have control over the individual assets within the fund. This means that if the fund includes stocks or bonds that the investor prefers not to have, they cannot modify their investments, which could lead to a misalignment with their personal values or investment strategies.

Why ETFs Over Stocks?

In sharp contrast to trading one single stock, an ETF can showcase a broad range of securities, offering more diversification compared to one stock. They can also trade like a stock, which means that certain features of stock trading are the same as with ETFs. Here are a few of those specific features they have in common:

• You can purchase ETFs and stocks on margin.
• You can trade futures and options with both.
• You’ll trade both stocks and ETFs on a stock exchange, such as NYSE.
• Prices change throughout the day, and shares can also be shorted in the event that either a stock or ETF price begins to fall.

Despite these similarities, many choose them over stocks simply because of the diversification that’s inherently available in ETFs.

Commissions and Fees Associated with ETFs

Because they trade like stocks, you’ll need to pay commission to a broker every time you buy or sell shares. Most brokers charge a small fee (typically under $10) to buy or sell an ETF.

However, there are certain families of ETFs that trade commission-free and those are worth looking into. For example, Fidelity doesn’t charge commissions for a specific group of its iShares ETFs. These types of commission-free ETFs are worth looking into; however, they’re typically not the best-performing ETFs by the various brokers.

In general, it’s best to compare and research those ETFs you’re interested in and compare them to what you’d pay for regular stocks, mutual funds and more.

Best Online Brokers for ETFs

Accessing the Stock Market Through ETFs

The beauty of an ETF is that there truly is something for everyone, and the other major advantage is that passively managed funds like ETFs can beat managed funds over time. If you’re interested in finding something that won’t eat up your money through expenses, or something you’d like to hold for the long term, seriously consider an ETF for your portfolio.

Frequently Asked Questions