How to Find and Invest in ETFs [Beginners Guide]

How to Find and invest in ETFs

What are ETFs?

Exchange-Traded Funds are similar to mutual funds but trade like stocks. They track an index but have a lower cost of entry than index funds. ETFs are a collection of securities that can be stocks, bonds, and other assets. They are not as managed as Mutual Funds. Because mirroring an index is less costly than having active managers.

ETF expense ratios, on average, are lower than mutual funds. Many ETFs have expenses below 0.25%. Some ETFs have expenses as low as 0.03%. By contrast, the expense ratio for the average mutual fund is about 0.76%

ETFs are attractive because you are purchasing it has a portfolio of stocks within it. You’re getting the benefit of buying a lot of stocks at once. ETFs are usually tied to a common sector or theme. With ETFs, you do have to pay commissions or you can find ones that have no fees or commission. When looking for ETFs it’s a good idea to be aware of fees and commissions before picking a brokerage. Some of my favorite brokerages are WeBull and Robinhood. You want to look at trading fees and commission when comparing many ETFs.

ETFs can be volatile. But they are less risky if they are mirroring a broad market index that covers many industries like the S&P 500. If you’re looking at an ETF that has a narrow niche it will be more volatile to swings in the market.

When researching ETFs pay attention to what it’s tracking so you have an idea of the industries in it. Because an ETF claims to be low volatility doesn’t make it true. Make sure you look at what companies it consists of. Since you don’t get to pick individual stocks for an ETF.

What to look for in ETFs?

Expense Ratio

Pay attention to the expense ratio. Which tells you what % of the funds' total assets are for operating the fund. It’s best to find ETFs with expense ratios under .20.

Liquidity & Trading Volume

You want to make sure that the ETF has liquidity. This means if you want to sell and take your money fast you’ll be able to do so. Check liquidity by making sure there is some volume. You can see this by the spread between the bid and buy. You don’t want there to be large spreads.

You want a trading volume of millions of shares per day or close to that. You will usually find this in a fund that is broad and following an index. You can look at the average daily trading volume.For context, the top 100 ETFs have a volume of over 3 million.

Good History

You want an ETF that has been trading for a while. Especially when starting out. Only look at ETFs that have been around for a least 3-5 years. You can usually see this on their profile. While you're at the profile. Look for a minimal tracking error. The lower the better. For example, SPY has a minimal tracking error of .05 which is good. In simple terms, this means how accurate it is in following the index its trading.

AUM or Assets Under Management

AUM is how much money the ETF is managing. The more money the better because that means a lot of traders trust in that particular fund. It also means that the fund has longevity. Yes, ETFs can close down. But you find that possibility more with newer ETFs. Steer clear of ETFs with less than $10 million Assets Under Management. You want at least $50 million. The higher the better. This is also found in their profile.

Here are 7 of my favorite ETFs to look into:

Vanguard S&P 500 (VOO)
Vanguard Total Stock Market (VTI)
SPDR S&P 500 (SPY)
Vanguard High Dividend Yield (VYM)
Vanguard Information Technology (VGT)
Schwab US Dividend Equity (SCHD)
Technology Select Sector SPDR (XLK)

Now that you have a starting list you can find a good brokerage (my two favorites are WeBull and Robinhood) and use my tips to find the best ETFs.

PIN IT

Disclosure: This post may contain affiliate links, which means we may receive a commission if you click a link and purchase something that we have recommended. Helping Tiffy to keep making cool posts and videos.

How to Find and Invest in ETFs [Beginners Guide]