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Add an ETF without breaking the bank

Investing in ETFs combines the diversification of mutual funds with lower investment minimums and real-time pricing.



What's an ETF?

To define what an ETF is, let's break down the term.

ET = "exchange-traded"

ETFs are traded on major stock exchanges, like the New York Stock Exchange and Nasdaq. Of course, you'll buy and sell them in your Vanguard Brokerage Account.

If you've ever traded an individual stock, then buying and selling an ETF will feel familiar because it's traded the same way.

F = "fund"

An ETF is a collection of tens, hundreds, or sometimes thousands of stocks or bonds in a single fund.

If you've ever owned a mutual fund—particularly an index fund—then owning an ETF will feel familiar because it has the same built-in diversification and low costs.

Why an ETF instead of individual stocks & bonds?

Less risk

Enjoy the convenience of an ETF, which already contains a preselected collection of stocks or bonds. If a single stock or bond in the collection is performing poorly, there's a good chance that another is performing well, which helps minimize your losses.

On the other hand, when you buy individual stocks and bonds, if one goes south, your savings could take a much bigger hit in a short period.

Less work

Leave the selection of stocks and bonds to a professional fund manager and save yourself the time and effort.

How a fund manager is different than a personal financial advisor

Just make sure you're familiar with the ETF's objective—what it's designed to achieve (such as income versus growth)—before you invest in it. You can certainly look at what specific stocks or bonds are in the ETF, but you don't have to keep track of every detail.

Lower costs

Buy and sell Vanguard ETFs in your Vanguard Brokerage Account and pay no commission—ever. And you can enjoy commission-free online trading on around 1,800 ETFs from Vanguard and about 100 other companies.1

1Commission-free trading of Vanguard ETFs applies to trades placed both online and by phone. Learn more about other conditions & costs that may apply

The alternative? Every time you buy and sell a stock or bond, you're likely paying a commission or trading fee. Although $5 or $7 doesn't sound like much for one trade, those costs can add up quickly over time when you're buying and selling an entire portfolio of individual stocks and bonds.

Cut your costs with ETFs

Why an ETF instead of a mutual fund?

Although ETFs and mutual funds share many similarities, there are a couple of distinguishing characteristics that may make ETFs more attractive to some investors, including:

  • Lower investment minimums when you first start investing.
  • Real-time pricing every time you buy and sell.

What's next?

Open a brokerage account

Already have a Vanguard Brokerage Account?

We're here to help

ALREADY OWN VANGUARD ETFs SOMEWHERE ELSE?

Transfer them to a Vanguard Brokerage Account so you can enjoy commission-free trades.


ETF costs

Let our commission-free trading and low expense ratios help you minimize your costs.

Types of ETFs

Choose from dozens of our bond, stock, international, and sector ETFs.

The Vanguard advantage

Choose a company that wants to help you make money from your investments—not pay a lot for them.

REFERENCE CONTENT

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Stock

Usually refers to a "common stock," which is an investment that represents part ownership in a corporation, like Apple, GE, or Facebook.

Each share of a stock is a proportional share in the corporation's assets and profits.

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Bond

Represents a loan given by you—the bond's buyer—to a corporation or a local, state, or federal government—the bond's "issuer."

In exchange for your loan, the issuer agrees to pay you regular interest and eventually pay back the entire loan amount by a specific date.

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Index fund

An investment that attempts to track the performance of a specific index (sometimes referred to as a "benchmark")—like the popular S&P 500 Index, Nasdaq Composite Index, or Dow Jones Industrial Average. A mutual fund or an ETF buys all or a representative sample of the bonds or stocks in the index that the fund tracks.

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Diversification

A strategy intended to lower your chances of losing money on your investments.

Diversification can be achieved in many ways, including spreading your investments across:

  • Multiple asset classes, by buying a combination of cash, bonds, and stocks.
  • Multiple holdings, by buying many bonds and stocks (which you can do through a single ETF) instead of only one or a few.
  • Multiple geographic regions, by buying a combination of U.S. and international investments.
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How a fund manager is different than a personal financial advisor

A fund manager is hired by the ETF to watch over which stocks or bonds are included in the ETF.

A financial advisor is hired by you to manage your personal investments, which could include ETFs.

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Commission

A fee that a broker or brokerage company charges every time you buy or sell a security, like an ETF or individual stock.

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Cut your costs with ETFs

Maybe you're thinking about handcrafting your portfolio. Before you do, make sure you understand the costs. (All examples below are hypothetical.)

Trading individual stocks

Imagine you want 25 different stocks in your portfolio, each of which is selling for $50 a share, and you're charged a $5 commission for each trade.

$1,250 purchase price (25 stocks multiplied by $50 per share)

+ $125 in commissions (25 stocks multiplied by $5 per stock)

= $1,375 total cost

Trading ETFs

An ETF can help you obtain the same level of diversification but at a much lower cost.

For example, imagine you buy 1 ETF that holds all 25 stocks and costs $50 a share, and you enjoy Vanguard's commission-free trading.

$50 purchase price (1 ETF multiplied by $50 per share)

+ $0 in commissions (for online trading on around 1,800 ETFs from Vanguard and about 100 other companies)

= $50 total cost

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Real-time pricing

Just like an individual stock, the price of an ETF can change from minute to minute throughout any trading day. The price you pay or receive can therefore change based on exactly what time you place your order. This is sometimes referred to as "intraday" pricing.

On the other hand, a mutual fund is priced only at the end of the trading day. Regardless of what time you place your trade, you and everyone else who places a trade on the same day receives the same price, whether you're buying or selling shares.

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Other conditions & costs that may apply

Commission-free trading of Vanguard ETFs applies to trades placed both online and by phone. Commission-free trading of non-Vanguard ETFs applies only to trades placed online; most clients will pay a commission to buy or sell non-Vanguard ETFs by phone. It also excludes leveraged and inverse ETFs, which can't be purchased through Vanguard but can be sold with a commission. Commission-free trading of non-Vanguard ETFs also excludes 401(k) participants using the Self-Directed Brokerage Option; see your plan's current commission schedule. Vanguard Brokerage reserves the right to change the non-Vanguard ETFs included in these offers at any time. All ETFs are subject to management fees and expenses; refer to each ETF's prospectus for more information. Account service fees may also apply. All ETF sales are subject to a securities transaction fee. See the Vanguard Brokerage Services commission and fee schedules for full details.