How to Buy ETFs: A Step-by-Step Guide for Individual Investors

You need a brokerage account and a few minutes to buy your first ETF

Buying an ETF is simpler than buying individual stocks. You open an account with a brokerage firm, deposit money, search for the ETF by its ticker symbol, and place an order just as you would for a stock. The whole process takes minutes once your account is funded. The main decision is which brokerage to use — most charge no commission on ETF trades, so the difference comes down to the account types they offer, their research tools, and how easy their platform is to navigate.

An ETF trades during market hours at a price that changes throughout the day, unlike a mutual fund, which you buy at a single price set once daily after the market closes. This means you can sell an ETF immediately if you need the money, and you see the exact price you pay before you confirm the trade.

Key Takeaways

• You must open a brokerage account before you can buy an ETF; most major brokerages charge no commission on ETF trades.
• ETFs trade during market hours at prices that change throughout the day, so you see the exact cost before you buy.
• You can hold ETFs in a regular taxable account, a retirement account like an IRA, or a 401(k) if your employer's plan offers them.
• Most brokerages let you buy a single share of an ETF, so you do not need thousands of dollars to start.
• Fractional shares mean you can invest a fixed dollar amount rather than buying whole shares at whatever the current price is.

Choose a brokerage and open an account

A brokerage is a firm licensed to buy and sell securities on your behalf. The major brokerages for individual investors include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, Vanguard, and Interactive Brokers, though many others exist. All of them let you buy ETFs with no commission. The differences lie in what account types they support, how much research and educational content they provide, and the quality of their trading platforms.

When you open an account, you will choose the account type. A taxable brokerage account has no contribution limits and no rules about when you can withdraw money, but you pay taxes on dividends and capital gains each year. A traditional IRA lets you deduct contributions from your taxes (up to annual limits that vary by year and income), and you pay taxes only when you withdraw money in retirement. A Roth IRA lets you contribute after-tax money, and withdrawals in retirement are tax-free. A 401(k) is offered by your employer; some plans let you buy ETFs directly, though many limit you to mutual funds.

The account opening process is online and takes 10 to 15 minutes. You will provide your name, address, Social Security number, employment information, and banking details. The brokerage will verify your identity and usually fund your account within one business day.

Deposit money into your account

Once your account is open, you need to move money into it before you can buy anything. Most brokerages let you link a bank account and transfer money electronically; this usually takes one to three business days to settle. Some brokerages also accept wire transfers, which settle faster but may carry a fee.

You do not need a large amount to start. Most brokerages now offer fractional shares, which means you can buy a portion of an ETF rather than a whole share. If an ETF costs $150 per share and you have $100 to invest, you can buy 0.67 shares instead of waiting until you have $150. This makes it possible to invest a fixed dollar amount — say, $100 per month — without worrying about the ETF's current price.

Find the ETF you want to buy

Every ETF has a ticker symbol, a short code of one to five letters. The S&P 500 ETF from Vanguard trades under the ticker VOO; the Vanguard Total Bond Market ETF trades under BND. You can search for ETFs by ticker, by fund name, or by category (such as "large-cap US stocks" or "emerging markets bonds") on your brokerage's website.

When you find an ETF, the brokerage will show you its current price, the fund's expense ratio (the annual cost to own it, expressed as a percentage), and basic information about what it holds. Read the fund's prospectus — a document the fund company publishes that explains what the fund invests in, how it is managed, and what fees it charges. The prospectus is available free on the fund company's website and on your brokerage's site.

If you are unsure which ETF to buy, start by deciding what you want to own — US stocks, international stocks, bonds, or a mix — and then compare the expense ratios of the largest ETFs in that category. Lower expense ratios mean lower costs over time. Vanguard, Fidelity, and iShares (owned by BlackRock) are the largest ETF providers and offer funds across most categories.

Place your order

Once you have chosen an ETF and have money in your account, buying it is straightforward. Search for the ETF by ticker symbol on your brokerage's trading platform, enter the number of shares (or the dollar amount if your brokerage supports dollar-based orders), and review the order before you submit it. The brokerage will show you the current price and the total cost.

You can place a market order, which buys the ETF at the current market price immediately, or a limit order, which buys only if the price drops to a level you specify. For most investors, a market order is simpler and executes right away during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays when the US stock market is open). If you place an order after market hours, it will execute when the market opens the next day.

Once your order is filled, the ETF shares appear in your account. You own them immediately and can sell them at any time during market hours.

Understand the costs you will pay

Most brokerages charge no commission on ETF trades, so you pay only the expense ratio — the annual fee the fund company charges to manage the fund. This is deducted automatically from the fund's value each day and is already reflected in the price you see. A fund with a 0.03% expense ratio costs $3 per year for every $10,000 you own; a fund with a 0.50% expense ratio costs $50 per year on the same $10,000.

You may also pay a bid-ask spread, the difference between the price at which you can buy an ETF and the price at which you can sell it at the same moment. For large, popular ETFs, this spread is tiny — often just a penny per share. For smaller or less-traded ETFs, the spread can be wider, meaning you lose a bit more when you buy and sell. Stick to large ETFs with high trading volume to keep spreads minimal.

If you hold an ETF in a taxable account and sell it for a profit, you will owe capital gains tax. If the ETF pays dividends, you will owe tax on those dividends in the year you receive them, even if you reinvest them. In a retirement account like an IRA or 401(k), you do not pay tax on gains or dividends until you withdraw money (or never, in the case of a Roth IRA).

Set up automatic investing if you want to buy regularly

Many brokerages let you set up automatic transfers and purchases. You can arrange for money to move from your bank account to your brokerage account on a set schedule — say, the first of each month — and then automatically buy a specific ETF with that money. This is called dollar-cost averaging: you invest the same dollar amount at regular intervals regardless of the ETF's price, which can reduce the impact of market ups and downs over time.

To set this up, go to your brokerage's settings and look for "recurring investments" or "automatic purchases." You will specify the ETF's ticker, the dollar amount or number of shares, and the frequency. The brokerage will handle the rest. This approach works well for long-term investors who want to build a position gradually without having to remember to buy each month.

Frequently Asked Questions

Can I buy an ETF with just $100?

Yes. Most brokerages now offer fractional shares, so you can invest any dollar amount. If an ETF costs $200 per share and you have $100, you will own 0.5 shares. You can also set up automatic monthly purchases of $100 if you want to invest regularly.

What is the difference between buying an ETF and a mutual fund?

ETFs trade during market hours at prices that change throughout the day, so you see the exact price before you buy. Mutual funds are priced once daily after the market closes. ETFs typically have lower expense ratios and are more tax-efficient in taxable accounts. Both can be held in retirement accounts.

Do I need a lot of money to start investing in ETFs?

No. With fractional shares, you can start with as little as $1. Most investors start with $100 to $500 and add to their account over time through automatic monthly transfers.

Can I buy ETFs in a retirement account?

Yes. You can hold ETFs in a traditional IRA, Roth IRA, SEP IRA, or most employer 401(k) plans. The rules about contribution limits and tax treatment depend on the account type, not on what you buy inside it.

What happens if I sell an ETF right after I buy it?

You can sell an ETF anytime during market hours. If the price has gone up, you will have a gain; if it has gone down, you will have a loss. In a taxable account, you will owe tax on any gain. In a retirement account, there is no tax consequence to selling.