Now that you can trade them commission-free, there’s never been a better time to add ETFs to your investment portfolio. Vanguard and Schwab are two big-name companies that offer the very best commission-free ETFs. But you'll also find that iShares offers a number of reputable options.

Long, long ago, in a mystical forest with good Wi-Fi, Goldilocks opened an investing account with $3,000 to invest.

At first, she considered pouring more money into her retirement accounts (which only holds mutual fund investments). But her Roth IRA was already maxed out for the year. Moreover, she knew that she would need this money sooner than age 65.

“Too cold!” she said.

Next, she considered investing in individual stocks. But even though she’d done her due diligence, she knew that investing in individual securities can be very risky. She didn’t need to become a millionaire overnight – she just wanted to make enough money to buy a cottage in a few years.

“Too hot!” she said.

Finally, she began browsing ETFs. ETFs are generally more stable, diverse, and safe investments than individual stocks, but they’re also more accessible than your retirement account.

Juuuuust right!” she said aloud.

10 years later, Goldilocks’ investment had paid off – thanks to a steady 10% APY, her $3,000 investment had become nearly $8,000, so she was finally able to pay restitution and legal fees to the family of bears down the way.

Thanks to inherent diversity and steady returns, ETFs are a great place to stash a few grand to help you save for a big expense years or decades down the line.

Large-cap stock ETFs

Large-cap ETFs typically bundle together blue-chip stocks or even an entire index, providing steady, sizeable returns. Warren Buffet once famously said:

“I just think that the best thing to do is buy 90% in S&P 500 index fund.”

So I’ve included two such options on the list.

You’ll also see a lot of Vanguard funds on this list because, well, they’re just awesome all the way around. Vanguard funds are extremely popular among investors because they combine industry-leading returns with incredibly low expense ratios. 

ETFSymbolFund infoExpense ratio
Schwab US Large-Cap Growth ETF™SCHGThe fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index.0.04%
SPDR S&P 500 ETFSPYThe SPDR® S&P 500® ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the “Index”).0.0945%
Vanguard S&P 500 ETFVOOThe Vanguard S&P 500 ETF invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies.0.03%
Vanguard Russell 1000 Growth ETFVONGThe investment seeks to track the performance of the Russell 1000® Growth Index. The index is designed to measure the performance of large-capitalization growth stocks in the United States.0.08%

Mid-cap stock ETFs

Goldilocks’ choice – mid-cap ETFs – bundle together companies that have an exciting growth curve before them, but are established enough not to fold overnight.

If you can tolerate a little more risk in exchange for higher potential returns than an index fund, consider these top picks: 

ETFSymbolFund infoExpense ratio
Vanguard Mid-Cap Growth ETFVOTVOT seeks to track the performance of the CRSP US Mid Cap Growth Index, which measures the investment return of mid-capitalization growth stocks.0.07%
iShares Core S&P Mid-Cap ETFIJFIJF seeks to track the investment results of an index composed of mid-capitalization U.S. equities.0.05%
Vanguard Mid-Cap ETFVOVO seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks.0.04%
Schwab U.S. Mid-Cap ETFSCHMSCHM’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index.0.04%

Small-cap stock ETFs

If you’ve looked at your asset portfolio recently and thought “hmm… needs a little more spice,” then a small-cap ETF might add just the right amount of kick.

These ETFs track small companies with big potential, so they present higher risk but higher potential reward than large- or mid-cap ETFs. 

ETFSymbolFund infoExpense ratio
Vanguard S&P Small-Cap 600 Growth ETFVIOGVIOG employs an indexing investment approach designed to track the performance of the S&P SmallCap 600® Growth Index, which represents the growth companies, as determined by the index sponsor, of the S&P SmallCap 600 Index.0.15%
Vanguard Small-Cap ETFVBVB seeks to track the performance of the CRSP US Small Cap Index, which measures the investment return of small-capitalization stocks.0.05%
iShares Core S&P Small-Cap ETFIJRIJR seeks to track the investment results of an index composed of small-capitalization U.S. equities.0.06%
Schwab U.S. Small-Cap ETFSCHASCHA’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Small-Cap Total Stock Market Index.0.04%

International stock ETFs

ETFSymbolFund infoExpense ratio
Vanguard Emerging Markets ETFVWOVWO invests in stocks of companies located in emerging markets around the world, such as China, Brazil, Taiwan, and South Africa.0.10%
Vanguard Total International Stock ETFVXUSVXUS seeks to track the performance of the FTSE Global All Cap ex US Index, which measures the investment return of stocks issued by companies located outside the United States.0.08%
SPDR® MSCI EAFE Fossil Fuel Free ETFEFAXEFAX seeks to offer climate-conscious investors exposure to international equities while limiting exposure to companies owning fossil fuel reserves.0.20%
Vanguard FTSE Developed Markets ETFVEAVEA provides a convenient way to match the performance of a diversified group of stocks of large-, mid-, and small-cap companies located in Canada and the major markets of Europe and the Pacific region.0.05%

Fixed income ETFs

ETFSymbolFund infoExpense ratio
iShares Core U.S. Aggregate Bond ETFAGGAGG seeks to track the investment results of an index composed of the total U.S. investment-grade bond market.0.05%
Vanguard Total Bond Market ETFBNDBND’s investment objective is to seek to track the performance of a broad, market-weighted bond index.0.035%
Vanguard Intermediate-Term Corporate Bond ETFVCITVCIT seeks to provide a moderate and sustainable level of current income by investing primarily in high-quality (investment-grade) corporate bonds.0.05%
Schwab 1-5 Year Corporate Bond ETFSCHJSCHJ’s goal is to track as closely as possible, before fees and expenses, the total return of an index that measures the performance of the short-term U.S. corporate bond market.0.05%

What does large-cap, mid-cap, etc. mean?

To start, “cap” refers to market capitalization, or the total value of a company’s shares on the market. For example, if a company has 1 million shares on the market valued at $10 a pop, their market cap would be $10 million.

  • Large-cap ETFs are comprised of companies each with a market cap of $10 billion or higher. The Vanguard Mega Cap ETF (MGC), for example, contains around 250 of the biggest companies in the USA, from Amazon to Apple. Since they’re often full of blue-chip stocks that provide slow-but-steady returns, large-cap ETFs are considered a safe, long-term investment.
  • Mid-cap ETFs are comprised of companies each with a market cap in the $2 to $10 billion range. All ETFs are designed to succeed and make money, so mid-cap ETFs are filled with midsized companies that are in the middle of their “growth curve,” so to speak – they’re high-performing, high-potential companies that may become the next blue-chip, so mid-cap ETFs balance risk and reward.
  • Small-cap ETFs are comprised of companies each with a market cap of “just” $300 million to $2 billion. Fund managers who design small-cap ETFs cast a wide net, aiming to scoop up “the next big thing.” As a result, these ETFs have higher growth potential than most ETFs, but also steeper downside if the smaller companies within end up folding. 
  • International ETFs are, as the name so subtly hints, full of non-U.S. stocks and securities. There are country-specific ETFs, foreign industry ETFs (think non-U.S. automotive stocks), and even ETFs representing emerging markets like sub-Saharan Africa and Brazil.
  • Fixed income ETFs, aka bond ETFs, give you access to diverse bond investments. For the uninitiated, bonds are like loans you make to companies or governments that they pay back with interest. You can read more about bonds here, but the bottom line is this: fixed-income ETFs provide steady income in the form of dividends, so they’re a good choice if you want a safe investment that gives you a paycheck!

Read more: How To Invest In ETFs

Which type of ETF is right for you?

Well, it depends on both your goals and your risk tolerance.

If you can tolerate some risk in your portfolio, and want your ETF investment to pay off sooner than later (within five years), you may want to consider small-cap and mid-cap ETFs. They’re riskier, but have higher upside potential.

If you’re looking for a safer investment that will multiply your money over a longer horizon (5+ years), a large-cap ETF is probably a fit.

If you’d like your ETF investment to provide a trickle of cashback each month, fixed income ETFs are probably your best bet.

And finally, if you don’t mind doing a little research or believe strongly in the economic performance of a foreign market, you’ll be a fan of international ETFs.

Read more: How To Determine Your Investing Risk Tolerance

About our criteria 

With hundreds of commission-free ETFs available, how did these become the winners?

To make this list, ETFs had to impress in all of the following categories:

  1. Earnings potential. Naturally, the first thing looked at was the ETF’s performance over the past five years. A good sign of a healthy ETF is how quickly it bounced back in Q3 2020 after the market panic surrounding the COVID-19 pandemic. Springboarding back and surpassing Q1 levels are a sign of investor confidence, and helped solidify the ETF’s place on this list.
  2. Expense ratio. Next, I looked at the ETF’s expense ratio. Your expense ratio is the percentage of your investment you pay to the fund manager for having shares of the ETF. Although measured in fractions of a percent, expense ratios make a difference – 0.80% of $10,000 is $80 and 0.04% is just $4, so ETFs with an expense ratio below 0.20% were favored.
  3. Fund reputation. You’ll see a lot of repeated names on this list because funds like Schwab, BlackRock (iShares), and especially Vanguard have a proven track record of building well-crafted, reliable ETFs with low expense ratios. Fund reputation matters in the long run because big funds attract big money, which helps to generate higher returns for you!
  4. Solid fundamentals. ETFs aren’t just random grab bags of stock and securities – each one is a carefully curated list, with selection criteria driven by both AI and human logic. There are some wacky and unique ETFs out there – such as Millennial ETFs and Space ETFs – and I’ll cover more of them in an upcoming piece. But this list isn’t for the experimental, exciting stuff – it’s for safe, dare I say boringplaces to stash and multiply your savings.
  5. Conscious investing. Finally, this was more of a small thing in the back of my mind, but I wanted each ETF on this list to score average or above average for “conscious capitalism.” No fossil fuels, no sin stocks (learn more about sin stocks here) – and not just because it’s not the way of the future, but because investments in conscious capitalism generally outperform “sinful” investments in the long term.

Commission-free ETFs solve a big problem for young investors

Commission-free ETFs aren’t just great because they’re cheap – they actually solve a pretty serious problem plaguing young ETF investors.

You see, ETFs have heftier commissions and trade fees than stocks because ETFs can be resource-intensive to create. Let’s say you’re a fund manager and you have an idea for an ETF. The process to get your ETF approved by the SEC isn’t unlike getting your new drug approved by the FDA; you have to research a ton, understand the risks, and propose your ETF to the government.

Once your ETF is approved and available, you probably want some additional compensation for your work beyond just capital gains from your ETF.

You don’t want to charge a high percentage trade fee, because big-ticket investors will be turned off. So, instead, you charge a $10 to $20 fee per trade of your ETF.

Big-ticket investors who drop $50,000 on a trade couldn’t care less about a $20 fee, since that represents just 0.04% of their investment. But if you’re a young investor, investing maybe $50 to $100 out of each monthly paycheck, a $20 per-trade fee is way too high – basically pricing us out of ETF investing. 🙁

Thankfully, many brokerages have realized that their per-trade fees are too high for young investors and have eliminated commissions on trades of certain ETFs. At first, funds like Vanguard and Fidelity only let you trade commission-free on their own platforms, but now, they’ve expanded their commission-free goodness to wide platforms like J. P. Morgan Self-Directed Investing.

And it’s not just the junk ETFs that get traded commission-free – in fact, it’s often quite the opposite. Firms like Vanguard and Fidelity will let you trade their most successful ETFs for free – presumably because they don’t really need the commission.

Summary

If you’re looking for an investment vehicle falling somewhere between your boring retirement account and your exciting individual stock purchases, ETFs are an excellent choice. And now that the big funds are waiving commissions on their top-performing ETFs, there’s never been a better time to dive into the world of ETFs and inject some low- to mid-risk into your portfolio.

ETFs are also an excellent investment if you’re looking to multiply your money and cash out within 2 to 10 years. You can even leave your ETF investment until retirement, if you want, so it has plenty of time to multiply under compound interest.

Not all ETFs are made the same, however – and the SEC has approved some stinkers over the years, for sure. These ETFs, on the other hand, are universally considered top-ranked and well-supported within the investor community – and are a superb place to start.

Read more:

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About the author

Total Articles: 155
Chris helps people under 30 prosper - both financially and emotionally. In addition to publishing personal finance advice, Chris speaks on the topics of positive psychology and leadership. For speaking inquiries, check out his CAMPUSPEAK page, connect with him on Instagram, or watch his TEDx talk.