How to Invest in ETFs & Best Funds to Choose

Investing in ETFs
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Exchange-traded funds (ETFs) are an excellent way for new investors to dip their toes in the trading waters. Since ETFs track indexes and assets, they're one of the easiest ways to make money on the stock market and are perfect for new traders.

Here’s how to invest in ETFs:

  1. Decipher what your goals are.
  2. Choose which ETFs you want to invest in.
  3. Set up a brokerage account. 
  4. Fund your brokerage account.
  5. Start investing.

The list above is a very brief guide to investing in ETFs. To learn more about how to invest and the best funds for new investors, be sure to read until the end.

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1. Decipher What Your Goals Are

Before investing in an ETF, you need to think about what you want to gain from investing. Do you want to invest long-term for your retirement, or do you want to make a short-term investment or invest in a particular sector? 

On the other hand, maybe you want to gain some experience investing for the first time and have no specific goals.  These are all questions you must ask yourself before taking the plunge.

Choosing an ETF is easier when you know what you want to gain.

2. Choose Which ETFs You Want to Invest in

Choosing an ETF can be daunting at first. After all, there are so many to choose from! I recommend new investors start with the Vanguard S&P 500 ETF

That's because the S&P 500 is a highly diversified portfolio featuring the top 500 performing public companies in the U.S. It's a low-cost and low-effort ETF perfect for long-term investing.

Other ETFs I'd recommend for long-term investments include the iShares Russell 2000 Growth ETF and the Invesco QQQ Trust.

The iShares Russell ETF tracks stocks from many companies, including Microsoft and Amazon. Since its inception, it has experienced steady growth and continues to grow.

However, as with everything related to the stock market, the future is never certain. It would be best to keep that in mind when investing in ETFs.

3. Set Up a Brokerage Account

To invest in ETFs, you must open a brokerage account; this is where you can buy and sell your ETFs. Since there are many brokers to choose from, you're spoiled for choice.

If you want some extra assistance, you can spend more money on additional features. Alternatively, if you wish to trade independently and don't want help, you can register with many brokers for free or for a minimal amount of money.

Some of the most popular brokers for beginners include:

You usually won't have to pay any initial fees when registering with a broker. However, you’ll need to deposit money from your bank account into your broker account when you want to start investing.

It's a simple process and can be done relatively quickly. Once you're ready to purchase your first ETF, you can go straight to the trading section of the broker's website.

The trading section is where you buy and sell your ETFs.

4. Fund Your Brokerage Account

In this case, let’s say you’re using M1 Finance to buy ETFs. Below are the steps you’ll follow to fund your M1 Finance account via your bank account:

  1. Link your bank account. Once logged in, go to the transfers page and click on ‘Manage bank accounts.’ You’ll then need to click ‘Link new bank account.’ After that, you’ll need to go through some verification steps for security purposes.
  2. Choose either electronic funds transfer or wire transfer.
  3. Click on ‘Account balances’ from the homepage once you’ve linked your bank account.
  4. Click ‘Transfer’ in the top left corner. Follow the instructions to fund your account.

5. Start Investing

Once you’ve set up your brokerage account and decided on your goals, you can browse the trading section and choose which ETFs you want to invest in.

Once you've purchased your ETF, it belongs to you. Even though it's kept on your brokerage account, the brokerage website only acts as an intermediary between you and the stock market.

You can hold your ETFs for as long as you'd like.  If you want to sell an ETF, you’ll usually need to go to the same trading webpage where you bought your ETF.

You’ll need to sell your ETF to another individual and set a minimum price.

Best Funds for New Investors

There are many beginner-friendly exchange-traded funds to choose from, and some of the most popular ETFs for new investors include:

  • Vanguard S&P 500 ETF
  • Vanguard Russell 2000 ETF
  • iShares Russell 1000 Growth ETF
  • Schwab Emerging Markets Equity ETF
  • Schwab U.S. Mid-Cap ETF
  • Vanguard High Dividend Yield ETF

Below, I'll briefly discuss some of the ETFs mentioned in the list above. Read on to learn more about them.

Vanguard S&P 500

The Vanguard S&P 500 ETF tracks the performance of the S&P 500 index, which features the top 500 performing publicly traded U.S. companies. Since it began, it has experienced stable annual growth, which is why it's an excellent ETF for new investors; it's low risk.

Schwab Emerging Markets Equity ETF

The Schwab Emerging Markets Equity ETF tracks the emerging markets index; this features large and mid-sized companies in developing or emerging market countries. 

If you’re thinking of investing in this ETF, it’s best not to put too much money into it because emerging markets are a vulnerable group.

Vanguard High Dividend ETF

The Vanguard High Dividend ETF tracks the FTSE High Dividend Yield Index. It follows the performance of stocks expected to have high dividend yields in the coming months and has an average annual growth of 26.09% as of January 2022.

The dividends are paid on a quarterly basis; you can receive your dividends in cash or reinvest them.

Should You Invest in ETFs?

Investing in ETFs is easy once you've set up your brokerage account. To recap, the most critical steps when investing in ETFs are:

  • Understanding your goals
  • Choosing ETFs that are suitable for your goals
  • Selecting the most suitable brokerage website

Additionally, some of the best ETFs for new investors include:

  • Vanguard S&P 500 ETF
  • Vanguard Russell 2000 ETF
  • iShares Russell 1000 Growth ETF

There are many more ETFs out there available, so be sure to do as much research as possible before taking the plunge.

M1 Finance

M1 Finance empowers you to manage your money and build wealth with ease. Just create and automate your portfolio and we'll take of the rest.

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