The Top Retail Brokerages for ETF Investors
While investing in ETFs is relatively simple, you should research the best brokerages for this investment strategy. Many brokerage choices are available, so it can be confusing for a new investor to decide which one to choose.
Factors to Consider for Retail Brokerages
Fractional Share Investing
When choosing a brokerage for ETF investing, the main factor to consider is fractional share investing. Fractional shares are essential for ETF investors because they allow you to invest with any dollar amount of money instead of being restricted to buying exact shares.
For example, if you have $100 you want to invest, but your favorite ETF is $300 per share, you will not be able to invest without fractional shares. If you are employing a dollar-cost averaging strategy, fractional shares make your life easier since you can choose to buy just a quarter of a share each month, for example.
Zero-Fee Trades
Up until a few years ago, it was common to pay anywhere from $5-$10 per trade to buy or sell stocks. Thanks to the competitive stock brokerage landscape, most brokers now offer zero-fee stock trades. This can save you lots of money over the course of your life. And will allow you to invest more towards your future.
The Top Brokerages for ETF Investing:
Robinhood
Robinhood is an excellent brokerage to invest in ETFs because of its simplicity and fractional share features. Robinhood makes it simple to create an account and allows you to invest with as little as $1.
Additionally, Robinhood has an automatic recurring deposit feature that allows you to invest on autopilot in your favorite stocks and ETFs. Regular deposits combined with fractional shares means you can choose to invest just $1 per day into an ETF. As a result, practically anybody can invest with Robinhood since the barrier to entry is so low.
Robinhood tends to get a bad rap from investors and traders alike because of the events that occurred in 2021 with trading halts. However, multiple brokerages halted trading with Gamestop meaning the incident is not specific to Robinhood.
Pros of Robinhood:
Fractional share investing
Ease of use
Recurring investment feature
Cons of Robinhood:
Bad customer service
Lack of sophisticated trading tools
No retirement account options
Vanguard
John Bogle, the founder of Vanguard, created the first index fund in 1975. Vanguard funds offer the lowest fees around, forcing competitors to lower their fees to compete. Without Vanguard, investing wouldn’t be nearly as accessible, making Vanguard a fantastic brokerage for ETF and mutual fund investing.
One of the downsides to Vanguard is the lack of availability to buy and sell securities quickly. Additionally, the platform doesn’t offer premium charting tools or fractional share investing. However, the lack of active trading features can be positive since most active retail traders do not outperform a buy-and-hold strategy.
Pros of Vanguard:
Low-cost ETFs and mutual funds
It’s difficult to buy and sell securities, reducing the chance of panic selling
Cons of Vanguard:
Lack of sophisticated trading tools
No fractional share investing
TD Ameritrade
TD Ameritrade is a fantastic broker since it offers incredible charting tools and the ability to invest in mutual funds and ETFs. TD Ameritrade is suitable for active day traders, and long-term buy and hold investors.
One of the downsides of TD Ameritrade is it does not offer fractional shares. Therefore, ETF investors must buy ETFs per share, which doesn’t allow investors to invest efficiently with smaller accounts. However, most mutual funds will allow you to purchase small amounts of the fund if you have at least a few thousand dollars to meet the minimum investment requirement.
TD Ameritrade Pros:
Advanced trading tools
Debit and credit card availability
Great retirement account options
TD Ameritrade Cons:
The trading platform is sophisticated but outdated
No fractional share investing
Charles Schwab
Charles Schwab is one of the largest brokerages for ETF investing and even owns TD Ameritrade. Schwab’s charting tools and trading platform are not as sophisticated as TD Ameritrade, but this is not an issue for ETF investors.
Schwab offers fractional share investing, allowing smaller accounts to invest efficiently. A benefit of using a large brokerage like Charles Schwab is the ability to obtain a debit and credit card that will enable you to spend money directly out of your brokerage account.
Pros of Charles Schwab:
Fractional share investing
One of the largest brokerages, which some consider safer
Robo-advisor with 0% fee
Cons of Charles Schwab:
High investment minimum for robo-advisor
Interactive Brokers
Interactive Brokers is the best brokerage for ETF investors outside and inside the United States. Most brokerages only allow American investors, while Interactive Brokers will work in many different countries. Additionally, Interactive Brokers offers fractional share investing.
Interactive Brokers is also great for quant and active traders requiring specific order types. However, ETF investors have all the features you could ask for with Interactive Brokers, making it a great ETF investing brokerage.
Pros of Interactive Brokers:
Fractional share investing
Advanced order types for active traders
Supports many countries
Cons of Interactive Brokers:
Outdated look and feel
Mediocre mobile app
Bottom Line
Choosing a brokerage for ETF investing depends on your overall investment goals and preferences. If you have a smaller account or no account yet, the ability to purchase fractional shares is crucial.
Also, if you ever want to actively trade on top of investing in ETFs, you’ll want to pick a brokerage with sophisticated trading platforms like TD Ameritrade. However, as an ETF investor looking for a brokerage, the main factor to consider is fractional share investing.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #042
