What ETF to buy now

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In investing, one of the most stressful parts is choosing winning stocks. Suppose you could invest without picking the right stocks.

An exchange-traded fund (ETF) helps you do just that. By investing in ETFs, you gain access to a wide range of stocks at once, providing you with an instant safety net since your investments are spread out. You can take advantage of the market's overall performance.

Whether you want to start investing or you want to grow your wealth over time, here's what you need to know about the top ETFs of 2023.

Best ETFs to Buy Now:

Vanguard Total Stock Market ETF

SoFi Select 500 ETF

SPDR S&P 500 ETF

iShares Core S&P Small-Cap ETF

Vanguard Mega Cap ETF

Schwab U.S. Dividend Equity ETF

Vanguard Total International Stock ETF

First Trust Long/Short Equity ETF

ProShares Short S&P 500 (SH)

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What Is an ETF?

Like mutual funds, exchange-traded funds (ETFs) are pooled investment securities. The majority of ETFs track specific indexes, sectors, commodities, or other assets. However, unlike mutual funds, ETFs can be traded on stock exchanges just like regular stocks. The price of a commodity can be tracked by an ETF, or a large and diverse collection of securities can be tracked by one. An ETF can even track a specific investment strategy.

Just like stocks, ETFs are traded on exchanges, so they are called exchange-traded funds. As shares of an ETF are bought and sold on the market, their price changes throughout the trading day. A mutual fund, on the other hand, is not traded on an exchange and does not trade until the markets close each evening. Furthermore, ETFs tend to be less expensive and more liquid than mutual funds.

Is It a Good Idea to Buy ETFs Now?

There is no doubt that ETFs are great for stock market beginners as well as experts. Compared with investing in individual stocks, they are relatively inexpensive, available through robo-advisors and traditional brokerages, and less risky. Maybe, you are also interested in information about key differences between stocks and ETFs

Through ETFs, you can invest in many different stocks at once. For example, an S&P 500 ETF, you would own shares of every company listed.ETFs, let you build a well-diversified portfolio much faster than investing in individual stocks.

👍 Pros

Diversification: Diversification is a crucial component of any effective asset allocation strategy - investing in a variety of asset classes and companies within each asset class. Compared to holding individual stocks, ETFs allow you to have broad exposure to a predetermined set of assets.

Transparency: Most ETFs provide investors with daily access to their underlying portfolios. Mutual funds are required to report their holdings a few times a year.

Trade-like stocks: When the stock exchange is open during the day, ETFs can be bought and sold just like individual shares of stock. To purchase or sell mutual fund shares, orders must be submitted before market close (earlier for some funds).

Cheap to own: ETFs are often very inexpensive to own. Several index ETFs, including Vanguard Total Stock Market (VTI) and Spider S&P 500 Index ETF (SPY), illustrate this point.

Low minimum to invest: Most mutual funds (even index funds) require a minimum investment of 4 to 5 figures. In the past, those of us who are just starting to invest - or who do not want to invest up to that rather-high minimum - were out of luck. ETFs are a great option. It's now possible to invest as little as one share. It's even possible to buy fractions of shares at some brokerages.

👎 Cons

Capital gains tax: There are some ETFs that distribute capital gains to shareholders, but not all. The result can be an unwanted tax liability due to capital gains taxes. Choosing an ETF that reinvests capital gains is usually a better option. Prepare yourself for capital gains by knowing how your ETF deals with them.

Market losses: Although there are some ETFs that invest in bonds and other relatively stable investments, most ETFs are well-diversified investments in the stock market, which involve some risk. In the event the market crashes and your ETF tracks the Standard & Poor's 500, your ETF will crash along with it.

Top 9 ETFs to Invest in Right Now

1. Vanguard Total Stock Market ETF

Vanguard Total Stock Market ETF is the best overall ETF for investors. At just 0.03%, it replicates the returns of the entire U.S. stock market. A large-cap, medium-cap, and small-cap company can be invested instantly without a minimum investment.

By combining this fund with a bond fund, investors can set their stock-bond allocation easily as part of a simple, two-fund portfolio.

2. SoFi Select 500 ETF

An interesting feature of this ETF is that it's investment adviser waived management fees until at least January 2023. The fund invests in roughly 500 of the largest businesses in the United States, much like an index fund. By investing more in companies with growth potential than merely weighing their market capitalization, it adjusts the weighting of these businesses somewhat.

3. SPDR S&P 500 ETF

ETFs such as SPDR S&P 500 ETF, or SPY, are very popular. Essentially, the index tracks the 500 largest U.S. companies according to the S&P 500. Stock market performance is commonly measured using the S&P index. SPY is one fund that you can use to day trade based on the overall performance of the market.

4. iShares Core S&P Small-Cap ETF

The iShares Core S&P small-cap ETF offers a diverse portfolio of smaller companies with a market capitalization between $250 million and $2 billion.

The fund manages over $74 billion, and it is inexpensive to invest in. Small-cap stocks may suffer from volatility due to such diversification.

5. Vanguard Mega Cap ETF

Investing in some of the largest companies in the United States is the primary objective of the Vanguard Mega Cap ETF, which focuses on businesses that account for roughly 70% of the country's market capitalization.

Shares of this fund are typically held by large companies with long histories. It is generally considered that large-cap companies offer dividends and more consistent returns than small-cap companies. It is important for investors to accept volatility before investing, however.

6. Schwab U.S. Dividend Equity ETF

Income from dividends is one of the most popular ways for investors to generate income from their portfolios. Schwab U.S. Dividend Equity ETF is one of the best income-producing funds. The fund invests in dividend-paying large companies.

7. Vanguard Total International Stock ETF

Vanguard Total International Stock ETF is a good investment if you want exposure to international businesses. This fund does not focus exclusively on mature or rapidly growing countries, unlike other international stock funds. By participating in it, you can get exposure to some of the top international companies as well as to firms from fast-growing countries.

8. First Trust Long/Short Equity ETF

There are a lot of passively-managed funds on this list, which means managers try to replicate an index without taking an active role in choosing investments. Funds that are actively managed are typically more expensive, but may appeal to investors looking to beat the market.

Actively-managed ETFs like the First Trust Long/Short Equity ETF have become increasingly popular over the past few years. In order to achieve the best possible return, it is necessary to hold both long and short positions on stocks. As a result, the fund should be able to produce a positive return regardless of market conditions, in theory. A long/short strategy and active management come with higher expenses, however.

9. ProShares Short S&P 500 (SH)

For those who are extremely bearish and want a hedge, or for those who are incredibly aggressive and looking for a short-term swing trade, remember that you don't have to limit yourself to investments that rise. The S&P 500 inverse fund is designed to deliver the opposite performance.

This has resulted in SH gaining 16% so far this year, while the S&P has moved by nearly the same amount. With nearly $4 billion in assets, SH is one of the most popular ways for investors to protect their portfolios.

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What Are the Best ETFs to Buy Now?

In a bear market, it is best to buy ETFs that have good long-term prospects. Below are the many factors that can significantly affect the prices of ETFs.

1. Supply and Demand

As buyers and sellers interact with one another and execute trades throughout the day, the price of ETFs fluctuates as they trade like shares of stocks listed on exchanges. Price rises in the market if there are more buyers than sellers. Prices generally decline when there are more sellers than buyers.

2. Economic Issues

The price of index-linked derivatives (such as futures and ETFs) is a natural vehicle for expressing broad market views around macroeconomic concerns.

3. Market Cycles

In ETFs, market makers arbitrage the price of the ETF against its underlying stocks. ETF trading in general accounts for a large percentage of this. Because there are wider spreads when markets are volatile (as they are this year), market participants have more opportunities.

4. Inflation

From a technical perspective, inflation drives ETF prices a lot. Historically, high inflation has driven low multiples and low inflation has driven high multiples (low inflation drives high multiples). Stock prices are generally adversely affected by deflation, since it reflects an erosion of pricing power for companies that make up ETFs.

5. Political News

Short-term events such as elections, legislative uncertainty, and military conflicts can also influence stock prices. During the 2016 and 2020 U.S. presidential elections, stock ETFs were volatile as investors awaited which administration would rule for the next four years. Due to Russia's invasion of Ukraine in early 2023, stocks fell, causing energy prices to spike even more.

It is not always obvious how markets are reacting, and traders can quickly shift their attention to a new topic of interest.

If you are interested in High-Dividend ETFs For To Invest In Long-Term, read the Traders Union article.

When to Buy ETFs for Long Term

1. You can buy the most promising ETFs during a bear market in order to sell them during the next bull cycle in the financial markets. Such a strategy implies that you gain a portfolio gradually on the downs. Previously, this was the most productive strategy. Many factors contribute to a bear market, but weak or slowing economic conditions and negative consumer sentiment are common causes. During bear markets, ETFs can be a great tool since they provide diversification, which reduces volatility in a portfolio at a lower cost and with a lower entry point. You can also be interested in information about defensive ETFs for bear markets.

2. For short-term purchases, it is best to use technical analysis and signals. This type of analysis involves analyzing the movement of price to identify patterns of repeatable behavior. In addition to technical indicators, traders often use price charts of ETFs to look for patterns indicating buying or selling opportunities.

Are ETF Investments Profitable?

Despite strong corrections, the stock market has historically grown in the long run. The S&P 500, for example, gives an average of 9-10% per year. The risk of losing investments, due to further corrections, should be considered, however.

Investing or trading in the fund can make you money. When you go long, you buy the ETF and ride its momentum to the upside.

When the price action of an ETF drops, you make money from shorting it. When compared to purchasing single stocks, ETFs are less volatile. Because of this, they provide a better investment strategy for long-term investors compared to day traders. There are, however, some ETFs that are not profitable. Profit depends also on the ETFs you own.

Best Brokers to Buy ETFs

InvesEngine

InvesEngine is a great broker for those looking to invest in ETFs. With InvestEngine, investors can build diversified global portfolios at low cost using 500+ handpicked exchange traded funds (ETFs). They also provide a range of innovative tools and features to help you build and manage your investment portfolio, all for no extra cost.

These tools and features include:

  • Fractional investing: You can invest as little as £1 in any ETF on our platform, regardless of its share price. By investing fractionally, you are able to access even the most expensive ETFs, allowing you to diversify your portfolio right away.

  • Smart portfolio top-ups: You can buy and sell according to your overall portfolio strategy. With their smart order technology, you can invest according to your chosen portfolio weights in just a few clicks.

  • AutoInvest: With InvesEngine's AutoInvest feature, you don't have to worry about uninvested cash building up in your portfolio. Using your chosen weights, any available cash in your portfolio will be invested every day, ensuring that you never lose out on rising markets.

  • One-click rebalancing: With a single click, you can reset your portfolio to your preferred asset allocation. Your portfolio will be realigned to your chosen investment weights by InvesEngine's powerful rebalancing tool. Simply put, it's a powerful way to stay on track.

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eToro makes it easy to trade ETFs. eToro offers low minimum investments and zero commissions on ETFs. ETFs such as SPDR S&P 500 ETF (SPY), Vanguard Real Estate ETF (VNQ), and Proshares Ultra S&P 500 ETF (SSO) are available on the eToro platform.

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Summary

Adding ETFs to your investment portfolio can be a great idea. They make building a diversified portfolio easy and cost-effective.

In addition, you can buy ETFs in a variety of ways, including using a robo-advisor, opening an account with a self-directed online brokerage, or consulting a financial advisor depending on your experience level and financial situation.

FAQ

Which ETF gives the highest return?

The ETF that gives the highest return can vary over time and depend on market conditions. Past performance is also not a guarantee of future results. Some high-return ETFs in recent years include ARK Innovation ETF (ARKK) and Invesco QQQ Trust (QQQ).

What is the safest ETF to buy?

The safest ETF to buy depends on your investment goals and risk tolerance. Generally, ETFs that track broad market indexes, such as the S&P 500 or the Total Stock Market Index, are considered relatively safe as they provide diversified exposure to a range of stocks. Examples of such ETFs include the Vanguard Total Stock Market ETF (VTI) and the iShares Core S&P 500 ETF (IVV).

What are the top three ETFs?

The top three ETFs can vary based on different factors, such as investment goals, asset classes, and investment strategies. However, some popular and widely traded ETFs include: SPDR S&P 500 ETF (SPY), Invesco QQQ Trust (QQQ), Vanguard Total Stock Market ETF (VTI).

What is the best index ETF to invest in 2024?

It is difficult to predict which index ETF will perform the best in 2024 as it depends on various factors such as market conditions, geopolitical events, and economic factors. However, some popular and well-regarded index ETFs include the SPDR S&P 500 ETF (SPY), the iShares Russell 2000 ETF (IWM), and the Vanguard Total Stock Market ETF (VTI).

How long should you hold an ETF?

Gains on ETF shares held for one year or less are classified as short-term capital gains. Long-term capital gains apply to ETF shares held longer than one year.

Can I sell my ETF anytime?

An ETF pools investors' assets and buys stocks or bonds based on a basic strategy outlined when the ETF is created. In spite of this, ETFs can be bought and sold at any time, just like stocks.

Are there any disadvantages to ETFs?

Yes, there are disadvantages of ETFs. Like any investment, they come with fees, can deviate from their underlying asset's value, and are susceptible to risk. It is therefore important for investors to understand the downside of ETFs.

Do you pay tax on ETF?

Investing in ETFs for more than a year is subject to long-term capital gains tax rates up to 23.8%, including the 3.8% Net Investment Income Tax (NIIT). If you hold equity or bond ETFs for less than a year, you are taxed at ordinary income rates up to 40.8%.

Team that worked on the article

Oleg Tkachenko
Author and expert at Traders Union

Oleg Tkachenko is an economist-analyst and a risk manager with a practical experience of working in financial institutions for over seven years. Oleg specializes in the analysis of commodities, Forex, stock markets and non-standard investment markets (cryptocurrency, hypes, peer-to-peer lending). He holds a Master’s Degree from the Ukrainian Academy of Banking of the National Bank of Ukraine, Kharkiv Banking Institute. Oleg became an author for Traders Union in 2018; in 2020 he joined the TU’s team of financial experts.

At Traders Union, Oleg is involved in expanded reviews of brokerage companies, and in monitoring the relevancy of the information provided in them. He analyzes trading strategies and indicators, and prepares educational articles on the topic of finance. In addition, Oleg carries out expert research in the Forex and stock markets, and also binary options and cryptocurrency markets. In particular, he checks brokerage companies, studies their performance and growth, tests new services offered by brokers, software and the level of customer support.

Oleg’s motto: Information is a force that opens boundless opportunities, but requires relevancy!

Olga Shendetskaya
Author and editor at Traders Union

Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.

Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.

Olga’s motto: Do well and you’ll be well!