ETFs allow amateur and professional investors alike to invest in stock indices without having to buy all the stocks in those indices or resort to leveraged CFDs or spread bets. Best of all, ETFs combine the benefits of mutual funds (diversification) with the benefits of single stocks (tradeable throughout the day).
In this guide, we identify the best ETFs to buy this year.
Where Can I Trade ETFs?
To trade ETFs, you need a good broker that supports this. Of the brokers that allow ETF trading, you’ll want to choose one that is regulated, offers tight spreads and low commissions, and has other useful features such as educational resources and good support response times. Our suggested brokers are as follows.
What Are ETFs?
An exchange-traded fund (ETF) is a fund, rather like a mutual fund, which pools money from many investors and invests that money in several stocks that have a common theme: all the stocks in the FTSE 100 index or several stocks from the renewable energy sector, for example.
Unlike mutual funds, ETFs can be traded on stock exchanges at any time during the trading day in the same way that you can trade stocks. Put simply, an ETF can be bought and sold like a single stock but it represents a basket of stocks.
How to Trade and Invest in ETFs?
Open a Trading Account
Open an account with an online broker by entering the required personal information and uploading any required identity documents. Then fund your account by bank transfer, credit/debit card, or PayPal (depending on the broker). Be sure that the broker you choose allows you to trade ETFs.
Use our list of suggested ETFs as a guide, but do your own research to choose the ETF(s) you want to buy, then find them in the list displayed on the broker’s mobile app or web trading platform. You should be able to pull up a price chart for each ETF to help you time your purchase.
Place Your Trade
Whether you’re buying shares of a single stock or shares of an ETF, you’ll fill out the same kind of online trading ticket to specify the number of shares you wish to buy or the amount of money you wish to invest. Submit the ticket to place your trade.
Best ETFs to Buy Now
We have prepared the following list of the best 10 ETFs to trade based on their excellent liquidity, historical performance, and the strong team behind them:
- SPDR S&P 500 ETF (SPY)
- Invesco QQQ ETF (QQQ)
- Vanguard Information Technology ETF (VGT)
- Schwab U.S. Small-Cap ETF (SCHA)
- Vanguard Growth ETF (VUG)
- Roundhill Sports Betting & iGaming ETF (BETZ)
- Distillate U.S. Fundamental Stability & Value ETF (DSTL)
- Invesco WilderHill Clean Energy ETF (PBW)
- Global X FinTech ETF (FINX)
- iShares Evolved U.S. Healthcare Staples ETF (IEHS)
We can now dig deeper into five of those ETFs.
1. SPDR S&P 500 ETF (SPY)
SPDR S&P 500 is one of the world’s prominent ETFs with 80 million daily share transactions. It invests in the 500 stocks that are included in the S&P 500 stock index and therefore attempts to track the S&P index (but not perfectly).
This ETF has risen almost tenfold since its inception in 1993, broadly in line with the underlying index. After a significant pullback in March 2020, which now looks like merely a blip, the underlying index and the SPY ETF have arguably gone parabolic. Although caution is always advised, it’s a brave investor who bets against the prevailing trend.
2. Invesco QQQ ETF (QQQ)
The Invesco QQQ ETF tracks the Nasdaq 100 index that is dominated by tech stocks. In 2020, the impressive 16% growth of the S&P 500 index was dwarfed by the Nasdaq index’s 45% gain over the same period.
Once again, caution is advised, but once again: it’s a brave investor who bets against the trend.
3. Vanguard Information Technology ETF (VGT)
Like the Nasdaq-tracking QQQ ETF, the Vanguard Information Technology ETF also focuses on technology investments. At the time of writing, Apple stock accounts for 20.26% of this fund and Microsoft stock accounts for 16.24%.
It should come as no surprise that this ETF has been on a multi-year bull run that accelerated during the coronavirus pandemic as many tech stocks benefited from us having to work, learn, and play from home.
4. Schwab U.S. Small-Cap ETF (SCHA)
You can tap into stock growth potential without focusing on a specific sector. Since SCHA offers a list of 1800 stocks, it is very diversified. This fund invests in companies like cancer-fighting startup Novocure (NVCR), LED light manufacturer CREE (CREE), and many more companies that you won’t have heard of.
Apart from the occasional minor blip, and a major one in February/March 2020, the value of this ETF has risen steadily (to about 5x) since its inception in 2009. Like other ETFs, it might look “toppy” midway through 2021, but investors should remember that “the trend is your friend”.
5. Vanguard Growth ETF (VUG)
The Vanguard Growth ETF includes companies with higher growth possibilities in 2021. If you want to focus on a sophisticated approach beyond the bread-and-butter index-tracking SPY and QQQ ETFs, this one might be for you.
This fund suffered less (as a percentage) than many ETFs during the February/March 2020 meltdown. As its name suggests, VUG has grown since its inception in 2004, but only by a factor of 5.
Expert Tip on Investing in ETFs“ Since ETFs can be traded like single stocks, you can use many of the same trading tools. For example, you could use a trailing stop order that follows the ETF’s price upwards and then sells your investment automatically if the price trend reverses. ”- Mir Kamrul
Why Trade ETFs?
ETFs are more attractive to trade than single stocks because they typically represent diversified baskets of stocks that are unlikely to become entirely worthless.
ETFs are more attractive than mutual funds because you can trade them at any time during the trading day whereas mutual funds can only be bought or sold once per day at that day’s price.
Frequently Asked Questions
We have suggested several ETFs that you can consider buying. Although they are inherently diversified, you can further protect your portfolio by investing in more than one of them.
Compared with other asset types, ETFs have features that make them always attractive to investors. However, the price of any particular ETF — or all of them — can go up or down according to economic cycles.
Amateur and professional investors alike can invest in ETFs as long as they can open a brokerage account. ETFs provide a convenient way for investors to buy into the fortunes of a stock index without having to resort to a contracts-for-difference (CFD) leveraged account.
A share is a unit of stock (part-ownership) of a company whereas an ETF is a basket of such stocks. ETF shares can be bought and sold in the same way as single stocks.
ETFs provide an easy way for beginner investors to invest in stock indices, thus achieving diversification, without having to buy all shares of all the companies tracked by the index.
A leveraged ETF aims to amplify your profits (e.g., by 3 times) when the price of the underlying assets increase. However, the advertised amplification factor is only relevant during a single trading day and the returns can be much different when a leveraged ETF is held for longer than a day.