Exchange-Traded Funds (ETFs) are powerful financial products that can provide exposure to a broad range of companies in a single click. But how do you buy exchange-traded funds, and which are worth looking out for? We answer these questions and more below. Let's dive deeper.
Where To Buy Exchange-Traded Funds
Figuring out where to invest in ETFs is essential for anyone wanting to add these powerful and robust financial products to their portfolio. Users must register with a broker to buy and sell ETFs. However, choosing the best option is difficult as there are many choices offering unique features.
Although the number of brokers can make choosing a platform time-consuming, there are a few key things to look out for that tell you a particular platform is worth considering.
Regulation
When an investor is choosing a broker, considering how/if the platform is regulated is crucial. Platforms regulated by prominent authorities like the Financial Conduct Authority (FCA) must abide by specific rules meant to protect users, revolving around things like transparency and balance protection.
Platform Fees
You'll be subject to various fees whenever you buy, sell, deposit, or withdraw. Most brokers have charges for the same events, so you should aim for a transparent platform offering the lowest possible costs.
Spread fees (the difference between an ETF’s buy and sell prices) are particularly important to optimise as they can be challenging to keep track of. Generally, brokers with spreads starting from around 0.5 pips are some of the cheapest platforms for buying ETFs.
Range of ETFs
There are many ETF categories and classifications, like bond ETFs or growth ETFs. Taking the time to understand the various types of funds can help you unlock the power of ETFs and determine which you require the most and which are essential for your broker to offer.
It’s advisable to use a platform that offers a mixture of large and small ETFs split across various industries, categories, and countries. Generally, you should aim to trade on platforms with 1000+ instruments (not just ETFs), as this will ensure there are always interesting opportunities to be found.
Reputation
An often-overlooked consideration when choosing a broker is its reputation. It's always worth checking when a platform was established, whether it's won any awards, and how it's rated on sites like Trustpilot. Longer-running, better-rated platforms typically offer a better user experience.
Which ETFs To Invest In
For people struggling to determine which ETFs to invest in, we've rounded up some of the most popular options across multiple sectors, like growth, dividend, and emerging markets. Our ETF beginners guide is an excellent resource for learning more about how to buy ETFs and how to select the right ETF.
Our picks for some of the best exchange-traded funds to invest in right now include:
iShares Core S&P 500 ETF (IVV)
Investing in a fund like the iShares Core S&P 500 ETF is perhaps the easiest way to buy ETFs. It mirrors the S&P 500, granting people exposure to some of the world’s best-known companies. It boasts a low expense ratio of 0.03% and a 1.26% dividend yield, making it a solid long-term ETF.
As it pays dividends and has low maintenance fees, the iShares Core S&P 500 ETF is well suited to strategies like long-term, passive investing where the buyer holds for 5-10+ years. The fund also works well with dollar-cost averaging (DCA), as investing over the long term will curtail market fluctuations.
The iShares Core S&P 500 is relatively easy to manage due to its composition. Events affecting it are widely reported, so it's relatively simple to track. With the ETF suited to passive, long-term investing, it's ideal for beginners and people wanting to start investing in a reasonably stable way.
Pros
- Provides exposure to industry-leading companies
- A low expense ratio benefits long-term holders
- Regular dividend payouts that can be reinvested
Cons
- Not suited to short-term investments
Invesco QQQ Trust ETF (QQQ)
The Invesco QQQ Trust ETF tracks the Nasdaq 100 index, which consists of the top 100 non-financial companies listed on the Nasdaq. As such, the fund provides exposure to many tech companies, like Meta, Apple, and Google. It boasts a 0.20% expense ratio and a dividend yield of 0.70%.
Due to tech stocks being particularly volatile, it can be wise to implement the 'buy the dip' strategy, where people invest during notable downtrends. It can also be helpful to purchase bonds or defensive ETFs to help control volatility.
Due to the Nasdaq consisting of many technology companies, the Invesco QQQ ETF is a strong choice for people seeking exposure to the US tech sector. The fund also suits people looking for a growth ETF who don't mind some extra volatility.
Pros
- High growth ETF due to tech stocks
- Strong historical performance
- Pays dividends
Cons
- Relatively volatile
- Moderate expense ratio (for a passively managed ETF)
iShares Core High Dividend ETF (HDV)
Do ETFs pay dividends? Yes, the iShares Core High Dividend ETF focuses on companies that have a strong history of consistently paying high dividends. It boasts a low expense ratio of 0.08% and a dividend yield of around 2.67%.
As the companies within this ETF are relatively predictable and consistent, the iShares Core High Dividend ETF can be good for people seeking to invest for retirement, compound earnings by reinvesting dividends, or acquire a defensive ETF to pair with more volatile options like Invesco QQQ.
Still wondering which ETFs to invest in? The iShares Core High Dividend ETF is a great choice for people seeking a cheap, stable fund offering consistent dividends. It averages annual returns of around 10% without much volatility, making it one of the 5 best ETFs to buy now for risk-averse investors.
Pros
- Relatively low volatility
- Cheap maintenance costs
- Consistent dividend growth
Cons
- Lesser upside compared to aggressive growth funds
iShares MSCI Emerging Markets ETF (EEM)
The iShares MSCI Emerging Markets ETF offers international diversification but has higher-than-average risk. The fund provides exposure to emerging economies like China, Brazil, and South Korea. It boasts a 3.23% dividend yield and a 0.72% expense ratio due to its volatility and regular rebalancing.
While the fund can be more volatile than those tracking large companies in developed economies, it’s a great way to diversify away from US or UK companies. It also has relevance as a growth stock and can be traded with a momentum-based strategy by identifying key growth trends in emerging countries.
The iShares MSCI Emerging Markets ETF is ideal for people who don't mind taking on some extra risk to potentially benefit from its fast growth. While it offers high dividend yields, the ETF can be impacted by geopolitical events, adding to its volatility.
Pros
- Provides exposure to international companies
- High dividend yield
- Potential for large growth
Cons
- Highly volatile
- Faces geopolitical pressure
Buying ETFs From Other Countries
How do you buy exchange-traded funds from international markets? Some brokers list domestic and international ETFs, enabling people to invest globally without switching platforms. Funds like the iShares MSCI Emerging Market ETF also provide worldwide exposure with minimal effort.
Risks of Buying International ETFs
While investing in international ETFs can offer several advantages, it comes with extra risk. As we touched on, geopolitical challenges are significant, hard-to-predict risks. Likewise, currency fluctuations can erode earnings, and smaller international ETFs may suffer from low liquidity.
How To Buy Exchange-Traded Funds From ActivTrades
As we’ve discussed, a trustworthy broker is required to buy the ETFs. If you haven't already decided where to purchase ETFs, ActivTrades is an excellent option as it’s regulated, boasts transparent fees, and offers a good selection of ETFs.
To open an account, you must register with ActivTrades, enter some personal details, and verify your identity via a photo ID. Once the account has been verified, deposit funds and access the ActivTrader trading platform to browse and trade the broker's range of available exchange-traded funds.
How To Apply Trading Strategies on ActivTrades
Now you know where to buy exchange-traded funds, it's time we delve into how you can leverage certain strategies on ActivTrades.
- Defensive ETF strategy: Investors can use ActivTrades to apply a defensive investing strategy by using ETFs like iShares 7-10 Year Treasury Bond ETF (IEF) and the iShares Core High Dividend ETF (HDV) to offset risk in a volatile portfolio.
- Long-term investing: A strategy users can apply is creating a portfolio of long-term ETFs like the iShares Core S&P 500 or the iShares US Real Estate ETF that can be bought and forgotten about. They usually have low expense ratios, so they’re one of the cheapest ways to buy ETFs.
- Dividend compounding: A good strategy for people aiming to increase their position size is dividend compounding. They buy a dividend-focused ETF on ActivTrades and reinvest their earnings from payouts to boost their position size and subsequent dividend payments.
Summary
Exchange-traded funds are a valuable tool for any investor or trader. They boast inherent diversification and can be used to balance a portfolio or gain exposure to a certain index or sector. While there are many options, some of the best ETFs to invest in include the iShares S&P 500 and Invesco QQQ Trust.
A trustworthy broker is required for anyone wishing to purchase an ETF. It's worth considering a platform's reputation, fees, regulatory status, and range of ETFs to determine which is right for you. ActivTrades is a solid choice as it has been running for 20+ years and has a great reputation with users.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.