Table of Contents

New Ways to Buy ETFs Online

Apps and robo-advisors want your investing dollars

By

Greg DePersio

Updated February 22, 2024

Reviewed by

Cierra Murry

Part of the Series

Exchange-Traded Fund Guide for Beginners

ETF Basics

Pros and Cons

Investing in ETFs

ETFs and Mutual Funds

Exchange-traded funds (ETFs) have been rapidly adopted by investors because they have very low fees and flexible trading opportunities. Not surprisingly, that has led to a lot of competition for customers from both new technology companies and the established trading platforms,

Individual investors can now take advantage of rock-bottom or zero fees from key players including Robinhood, E-trade, WeBull, and M1 Finance. These companies and others are taking market share away from traditional firms by offering apps and robo-advisors that help ETF investors build and manage their portfolios.

Key Takeaways

ETFs are similar to mutual funds but they trade on exchanges like stocks.
Most have very low fees as they are passively-managed funds tied to an index or other benchmark.
The rise in mobile apps such as Robinhood and Ally gives investors worry-free access to their trading accounts along with low trading fees.
Robo-advisors like Wealthfront and Betterment use algorithms to help you make investing decisions,

Exchange-Traded Funds (ETFs): An Overview

ETFs are like mutual funds in many ways. Like mutual funds, they are a pool of money from many investors. The investors then own shares in a fund that is made up of many stocks and other assets.

Many funds invest in the broadest possible range of stocks, like every stock listed in the S&P 500. Others seek to exploit opportunities in consumer staples, medical technology, or gold mining. You can find ETFs that cater to niche investing styles, such as environmental, social, and governance (ESG) investing.

ETFs have two distinct differences from mutual funds:

They trade like stocks on a stock exchange, which means they can be bought and sold during regular trading hours through a broker or a brokerage app. That makes them highly liquid assets.
Most have very low expense ratios, so more of your investment ends up in your pocket rather than the issuer's. (This is no longer a hard and fast rule. Mutual fund issuers have lowered their fees in recent years in order to compete.)

Keep in mind also that other fees for ETF trading may be charged by a broker.

The Toronto 35 Index Participation Units was the world's first ETF, launched by the Toronto Stock Exchange in 1990. State Street created the first U.S.-based ETF in 1993.

Trading Apps

There was a time when you needed a live broker or middleman to make trades or invest your money. While you can still use the services of a financial professional, mobile trading apps make it easier for those who want to take charge of their finances and make key investment decisions on their own.

They are the customers that online trading platforms and mobile apps compete to serve. It's estimated that more than 130 million people used these apps in 2021, generating $22.8 billion in revenue for these companies.

The following are just two of the names in the mobile trading app space.

Robinhood

Robinhood is one of the top trading apps for investors. Launched in 2014, it charges no commission fees on ETF and stock trades. As an investor, you'll pay the usual expense ratio to the ETF issuer.

Robinhood makes money by charging interest for margin accounts and by investing its clients' cash holdings in interest-bearing accounts. Robinhood also offers a monthly premium subscription plan for members to receive special services and market intelligence.

The company enjoys the backing of venture capitalists and angel investors as diverse as Google Ventures, Jared Leto, and Snoop Dogg.

Ally Invest

Ally Invest is another major name in the mobile trading app world. The company acquired TradeKing in 2016. It offers commission-free trades for ETFs along with stocks and options. It is a good option for investors who know their way around a portfolio.

If you're an investor who wants a managed portfolio, there are options available through Ally Invest. You can choose from portfolios designed for social responsibility, tax optimization, and more.

Investors can choose from about 2,844 ETFs that are based in the U.S.

Robo-Advisors

Robo-advisors are features of some trading platforms that offer financial and investment planning services as well as hands-on trading. These services are driven by algorithms and involve little or no human supervision. Suggested portfolios are created as investors answer questions about their financial situation and goals.

Services that feature robo-advisors are designed for investors focused on the long term rather than day-to-day trading. Investors are offered a selection of ETF portfolios that are monitored and adjusted automatically over time. They are another low-fee alternative.

Wealthfront and Betterment are pioneers in the robo-advisor industry. Both charge an annual advisory fee of 0.25% and zero trading or account transfer fees. Both apps walk users through the process of setting up a portfolio of ETFs based on their answers to a series of questions regarding risk tolerance and investing preferences.

Wealthfront and Betterment offer diverse ETFs, from straightforward ones that track broad U.S. stock indices such as the S&P 500 to highly specialized funds that focus on areas like emerging markets or real estate investment trusts (REITs).

Both platforms make it easy to set up tax-sheltered retirement accounts, such as individual retirement accounts (IRAs).

How Do You Choose?

So how do you choose? There are certain factors you'll want to consider—notably, the fees charged for use of the app and the relative ease of access to your money.

Low fees are a big deal for investors in ETFs, and for good reason. That makes the fees and commissions charged by an app a deciding factor in choosing one over another.

In any case, while deciding on an online broker, look at the range of ETFs offered. Each has a different mix.

How Do ETFs Work?

Like mutual funds, ETFs are pools of money that investors can buy shares in. The issuer is offering the ability to buy proportional shares in a selection of stocks and other investments. The investor can choose to buy shares that reflect every company listed in the S&P 500 Index or in a more specialized industry or sector. The investor can pick a fund made up of high-flying technology companies or steady money-makers.

In any case, ETFs are known for the low fees they charge investors. Most of the funds are passively-managed, merely mimicking the contents of an index or other benchmark.

As the name implies, they also can be bought and sold on a stock exchange. Mutual funds can only be sold after hours.

Can Beginners Trade ETFs?

For an individual investor, an ETF is a reasonable way to create a diversified portfolio of investments without diving into the hazardous waters of stock-picking.

If you want to create a steady stream of income, you might choose a high-dividend-yield ETF. If you want to own a tiny share of many high-quality stocks, you can choose an ETF built around blue-chip stocks. Even better, you can divide your stake among two or more ETFs, building in safety as well as a reasonable amount of risk in your choices.

Since they're traded on exchanges, investors can easily buy and sell them at their discretion.

Can I Trade ETFs Online Without a Traditional Broker?

You can trade ETFs by setting up a regular account through an online broker, a mobile trading app, or a robo-advisor provider. Any of these will allow you to trade stocks, bonds, and many other assets in addition to ETFs.

The Bottom Line

Investing in ETFs is a good way to diversify your portfolio. These investments can be easily traded on stock exchanges, so you can buy and sell them with ease.

You can choose the ETFs that best suit your needs by using a traditional broker. But you can also invest in them by signing up for an account through a mobile trading app or a robo-advisor.

Before you decide which route to take, be sure to do your research to ensure you're getting the best trading platform for your money.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

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Ally. "Ally Financial Announces Acquisition of TradeKing Group."
Ally. "Take a Closer Look at Our Commissions and Fees."
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Betterment. "Pricing at Betterment."

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