In you are interested in passive investing, you’re probably aware of ETFs and their benefits. If you’re not, ETFs have a legion of supporters due to their extremely low management expense ratios. In comparison to similar mutual funds, ETFs often have significantly lower management fees. This means that you get to keep more of your investment, vs. giving it away to an investment house. These savings can really add up over time.
The Downside to ETFs
ETFs, unlike mutual funds, are traded on the stock market. This means that any time you add or subtract from your position in an ETF, you have to pay your broker’s trading fee.
This isn’t the case with mutual funds. With mutual funds, you pay a one-time charge to buy in to the fund. Any subsequent addition or subtraction of shares does not result in trading costs.
The downside to ETFs vs. mutual funds is that if you want to start small and add to your position over time as your savings grow, you will incur trading costs EVERY time you purchase additional shares. Those fees can quickly add up over time, offsetting the savings you enjoyed from the lower expense ratios.
There is, however, a way to avoid these fees.
Commission-Free ETF Trading
Fortunately, there are a number of investment brokers that offer free ETF trading.
Why would they do this, you may ask?
- To attract new customers who are interested in ETFs who don’t want to pay lofty trading fees every time they move in or out of an ETF or simply increase or lower their position in that ETF.
- To encourage purchase of their own branded ETFs (if they create and manage them) so that they can profit from the management fees.
Brilliant strategy, no?
Which online brokers offer free trading in and out of ETFs?
Online Brokers with Commission-Free ETF Trades
There are a number of online brokers at the moment that offer a selection of commission-free ETFs. Free stock, ETF, & options trades has become a very common offering. Here is a list of the discount brokers that includes how many commission free ETFs they offer, which company they offer them from, and normal trading costs.
- Vanguard: ETF selection includes 82 Vanguard managed ETFs as well as 1,800 ETFs from other companies.
- Schwab: 2,000+ ETFs, including 25 Schwab managed ETFs. Note that Schwab recently purchased TD Ameritrade, though the two haven’t integrated yet.
- TD Ameritrade: 2,300+ ETFs. As noted, TD Ameritrade was recently purchased by Schwab.
- Fidelity: includes 81 Fidelity ETFs and 372 iShares ETFs.
- ETrade: no ETrade managed ETFs, but 2,580 ETFs from other providers.
ETF Investing Discussion:
- Where do you trade ETFs and why?
- Have you created an account with a broker just for the benefit of commission-free ETF investing?