5 Best ETFs for September 2023 and How to Invest

Exchange-traded funds (ETFs) can be an excellent entry point into the stock market for new investors. They’re cheap and typically carry lower risk than individual stocks since a single fund holds a diversified collection of investments.

Best ETFs for beginners as of September 2023

One way for beginner investors to get started is to buy ETFs that track broad market indexes, such as the S&P 500. In doing so, you’re investing in some of the largest companies in the country, with the goal of long-term returns. Other factors to consider include risk and the fund’s expense ratio, which is the amount you’ll pay in fees every year to own the fund — the lower the expense ratio, the less it will eat into your returns.

iShares Semiconductor ETF

Technology Select Sector SPDR Fund

iShares U.S. Technology ETF

Vanguard Information Technology ETF

Source: VettaFi. Data is current as of market close on August 31, 2023, and is for informational purposes only.

Methodology

To arrive at our list, we looked for ETFs with expense ratios below 0.5% that hold the largest U.S.-based companies, and excluded leveraged, inverse and hedged ETFs. The results are listed above in order of five-year performance.

Types of ETFs

There are many types of ETFs that can expose your portfolio to different assets and markets. These include:

By including other sectors and types of investments within your investment portfolio you’re diversifying your assets. Diversification brings down risk. In the event that one company or sector does not perform well, you have many others that may support the performance of your portfolio as a whole. You should evaluate your financial plan to decide if any of these types of ETFs are right to include in your portfolio. You’ll need to consider your investment goals and risk tolerance.

How to buy an ETF

Here’s how to identify the best ETFs for you, and how to buy them in just a few steps.

1. Open a brokerage account

You’ll need a brokerage account to buy and sell securities like ETFs. If you don’t already have one, see our resource on brokerage accounts and how to open one. This can be done online, and many brokerages have no account minimums, transaction fees or inactivity fees. Opening a brokerage account may sound daunting, but it’s really no different than opening a bank account.

If you’d rather have someone do the work of investing for you, you might be interested in opening an account with a robo-advisor. Robo-advisors build and manage an investment portfolio for you, often out of ETFs, for a low annual fee (typically 0.25% of your account balance). Because robo-advisors offer curated investment portfolios, you may not be able to find and invest in the ETFs outlined above. But that’s part of their appeal — the robo-advisor picks investments for you.

To screen and invest in the specific ETFs you want, you’ll need a brokerage account at an online broker.

2. Find and compare ETFs with screening tools

Now that you have your brokerage account, it’s time to decide what ETFs to buy. Whether you’re after the best-performing broad index ETFs or you’d like to search for others on your own, there are a few ways to narrow your ETF options to make the selection process easier.

Most brokers offer robust screening tools to filter the universe of available ETFs based on a variety of criteria, such as asset type, geography, industry, trading performance or fund provider.

There are thousands of ETFs listed in the U.S. alone, so screeners are critical for finding the ETFs you’re looking for. Try using the below criteria in your brokerage’s screener to narrow them down:

  • Administrative expenses. Also known as expense ratios, these expenses cut into profit, so lower is better. According to Morningstar, the asset-weighted average expense ratio for passively managed funds was 0.12% in 2020, so this could be a good number to start with in your screener. You’ll find, though, that some popular ETFs have expense ratios much lower than this, so don’t be afraid to screen for below the average.

  • Commissions. These are fees you pay per transaction when you buy or sell an ETF. Fortunately, commissions are virtually nonexistent at most major online brokers these days, but it’s a good idea to check before you buy. Brokers that charge a commission often offer select ETFs commission-free.

  • Volume. This shows how many shares traded hands over a given time period — it’s an indicator of how popular a particular fund is.

  • Holdings. You’ll be able to see the top holdings in the fund, which simply means the individual companies the fund invests in.

  • Performance. You know the saying: “Past performance doesn’t indicate future returns.” But it still can be useful to compare the performance history of similar funds. Look at a fund’s long-term performance, so three-year, five-year or 10-year performance instead of one-year for example, to get a sense of how it has performed historically.

  • Trading prices. ETFs trade like stocks; you’ll be able to see current prices, which dictates how many shares you can afford to buy.

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3. Place the trade

The process for buying ETFs is very similar to the process for buying stocks. Navigate to the “trading” section of your brokerage’s website; in this context, “trade” means you’re either buying or selling an ETF. You’ll buy the ETF using its ticker symbol — here’s more on that and other basic terms you’ll need to know:

The unique identifier for the ETF you want to buy. Be sure to check you have the correct one before proceeding.

The current trading price is determined by:

  • A “bid,” or the highest price buyers are willing to pay.

  • An “ask,” or the lowest price sellers will take in exchange.

The number of shares you wish to buy.

These basic order types should suffice, though additional options may be available:

  • Market order: Buy ASAP at best available price.

  • Limit order: Buy only at a specified price (or lower).

  • Stop order: Buy once a specified price has been reached (the stop price), executing the order in full.

  • Stop-limit order: When stop price is reached, trade turns into a limit order and is filled to the point where specified price limits can be met.

Price per trade the brokerage will charge for its service. Most major brokerages now offer commission-free ETF trades.

The bank account linked to your brokerage account — be sure it has sufficient funds to cover the total cost.

And here’s what that looks like within a brokerage, in this case Vanguard:

Before you execute your order, you’ll have an opportunity to double-check that everything is correct. Make sure your order is set up as intended: Check the ticker symbol (ETFs with similar ticker symbols can be wildly different), order type and that you haven’t made a “fat finger” error — for example, typing 1,000 shares when you intended to buy only 100.

4. Sit back and relax

Congratulations, you’ve just bought your first ETF. These funds can help form the basis of a well-diversified portfolio and serve as the first step in a long-lasting investment in the markets. There’s no need to compulsively check how this ETF (or your other investments) are performing, but you can access that information when you need it by checking the ticker symbol on your brokerage’s website or even just by typing it into Google.

If you’re wondering how your brand new ETF purchase might affect your long-term investment goals, you can look at different scenarios (e.g. 9% or 5% annual returns) using an investment calculator.

Frequently asked questions

Learn more about sector ETFs:

Neither the author nor editor held positions in the aforementioned investments at the time of publication.

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