How to select the best ETFs for your needs. (2024)

FAQs

How to choose the best ETFs? ›

Before purchasing an ETF there are five factors to take into account 1) performance of the ETF 2) the underlying index of the ETF 3) the ETF's structure 4) when and how to trade the ETF and 5) the total cost of the ETF.

How to build an optimally diversified portfolio? Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

1. VanEck Semiconductor ETF. The VanEck Semiconductor ETF (SMH) tracks a market-cap-weighted index of 25 of the largest U.S.-listed semiconductors companies. Midcap companies and foreign companies listed in the U.S. can also be included in the index.

Two of the most popular ETFs include index funds based on the Standard & Poor's 500 index and the Nasdaq 100 index, which contain high-quality businesses listed on American exchanges: Vanguard S&P 500 ETF (VOO), with an expense ratio of 0.03 percent. Invesco QQQ Trust (QQQ), with an expense ratio of 0.20 percent.

Morningstar excels in its ability to provide a holistic analysis of ETFs. Investors can access detailed information on a fund's historical performance, risk metrics, and expense ratios.

Since the job of most ETFs is to track an index, we can assess an ETF's efficiency by weighing the fee rate the fund charges against how well it “tracks”—or replicates the performance of—its index. ETFs that charge low fees and track their indexes tightly are highly efficient and do their job well.

Investors who aren't able to buy multiple ETFs in the beginning, can start with a core holding, such as an S&P 500 index fund or a total stock market index fund. From there, an investor can build around the core with other ETFs that add diversity to the mix, such as fixed-income funds and sector funds.

How many S&P 500 ETFs should I buy? ›

SPY, VOO and IVV are among the most popular S&P 500 ETFs. These three S&P 500 ETFs are quite similar, but may sometimes diverge in terms of costs or daily returns. Investors generally only need one S&P 500 ETF.

How many ETFs are enough? The answer depends on several factors when deciding how many ETFs you should own. Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.

Don't Trade Immediately at the Market Open

Generally speaking, the best time to trade ETFs is closer to the middle of the trading day rather than the beginning or end.

One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ). The SCHD ETF focuses on high-quality dividend stocks, which can provide stable income and potential long-term growth.

Market orders are the simplest and represent the default order at most brokerages. It is simply an order to buy or sell an ETF at the best available price in the market at that moment. Pro: You can buy or sell as quickly as possible, because market orders prioritize speed of execution.