Exchange-Traded Funds: Tips to Help Narrow Down Your Choices

Investing in exchange-traded funds (ETFs) can provide exposure to a wide variety of markets, sectors, and asset classes. Get tips to help you find ETFs that match your goals and investment style.

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https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Shopping list: Looking for investment ETFs? Tips to help you research
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Key Takeaways

  • Decide if you want to broaden your portfolio.
  • Consider diversifying with ETFs—there’s generally at least one for every type of investor.
  • Identify goals and investment preferences to help streamline your search.

Looking for a more efficient way to diversify your portfolio? You may want to consider an exchange-traded fund (ETF). With an ETF, you have the opportunity to invest in a basket of securities that aligns with your goals, risk tolerance, and time horizon. And there are plenty to choose from—offering exposure to a wide variety of markets, sectors, and asset classes.

Here are some tips to help you zero in on the ETFs that may fit with your investment strategy. We'll also illustrate how you can put these tips into action by using TD Ameritrade's ETF Market Center as an example. It's a broad collection of 300+ commission-free ETF products and research tools available to TD Ameritrade clients. Of course, particular commission-free ETFs may not be appropriate investments for all investors, and there may be other ETFs or investment options available at TD Ameritrade that are more suitable.

Start with a Comprehensive List of Exchange-Traded Funds

First, find a list that allows you to view and filter available ETFs using a variety of search criteria. That may increase the likelihood you’ll find ETFs that are designed to meet your needs.

In figure 1, you’ll notice the ETF Market Center categorizes ETFs by market sector, investment style, commodities, global and emerging markets, and individual stock selection.

Finding ETFs to match investment goals

FIGURE 1: FILTER BY YOUR INVESTMENT GOALS.

Image source: tdameritrade.com. For illustrative purposes only.

Know Your Investment Style

Depending on where you’re at in your financial journey, you may want investments that generate income, offer the potential for growth, or some combination of the two. You can use your investment objectives and risk tolerance to help guide you toward ETFs that match your style. 

Identify the Stocks or Sectors You’re Interested In  

If you’re bullish on a particular sector (e.g., energy, technology, healthcare), you might filter the list of ETFs to find ones that focus on that industry (see figure 2). For example, selecting financial services from the ETF Market Center menu would pull up the available choices in this category.

Filter ETFs by sector

FIGURE 2: FILTER ETFS BY SECTOR.

Image source: tdameritrade.com. For illustrative purposes only.

Or perhaps, you may want to gain exposure to a certain stock without buying it outright. You could search by the stock’s ticker symbol to see which ETFs invest in it.

Decide If There are Other Securities You Want in Your Portfolio

ETFs focus on more than just U.S. stocks. Some invest in a wide range of commodities, including agriculture, energy, industrial, precious metals, and more. Others might focus on a specific region of the world. And still more may provide exposure to fixed-income securities. Searching by your investment preferences may help you quickly identify potential ETFs to consider.

Dig Deeper into the Details

Narrowing down the list of ETFs to a handful that meet your criteria is just the first step. You’ll want to review each fund to learn more about its investment approach, features, and performance before making a decision. Of course, past performance is no guarantee of future results.

Clicking on a specific ETF within the Market Center will pull up a collection of stats and tools, including a comprehensive summary, ratings and risk, portfolio holdings, and technical charts—all things that might help you better evaluate an ETF. (See figure 3.)

Analyze ETF details

FIGURE 3: ANALYZE THE ETF DETAILS.

Image source: tdameritrade.com. For illustrative purposes only.

There’s an ETF for That

Exchange-traded funds come in many different forms and can include a wide range of financial instruments. They can be narrowly focused, or highly diversified; customized to suit more conservative tastes, or designed to be more aggressive; limited to a single domestic sector, or open to a mix of global assets.

In addition to building your own ETF portfolio, you can also invest in these funds using a managed portfolio solution from TD Ameritrade Investment Management, LLC.* You might consider this option if you don't have the time or desire to select ETFs on your own. 

Whichever approach you choose, carefully consider each fund’s investment objectives, risks, charges, and expenses before investing. You can find most of this and other important information about the ETF in each fund's prospectus.

TD Ameritrade clients can call 800-669-3900 to obtain a prospectus. Read carefully before investing.

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ETFs are subject to risk similar to those of their underlying securities, including, but not limited to, market, investment, sector, or industry risks, and those regarding short-selling and margin account maintenance. Some ETFs may involve international risk, currency risk, commodity risk, leverage risk, credit risk, and interest rate risk. Performance may be affected by risks associated with nondiversification, including investments in specific countries or sectors. Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small-capitalization securities, and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

Information provided by TD Ameritrade, including without limitation that related to the ETF Market Center and commission-free ETFs, is for general educational and informational purposes only and should not be considered a recommendation or investment advice. 

ETFs purchased commission-free that are available on the TD Ameritrade ETF Market Center are available generally without commissions when placed online in a TD Ameritrade account. Other fees may apply for trade orders placed through a broker or by automated phone. 

Short-Term Trading Fee (Holding Period for 30 Days). ETFs available commission-free that participate in the ETF Market Center may be subject to a holding period that commences with any purchase and extends through the following THIRTY (30) calendar days.  An account owner must hold all shares of an ETF position purchased for a minimum of THIRTY (30) calendar days without selling to avoid a short–term trading fee where applicable.  There is no limit to the number of purchases that can be effected in the holding period. Any order to sell within THIRTY (30) calendar days of last purchase (LIFO – Last In, First Out) will cause an account owner's account to be assessed a short-term trading fee of $13.90 where applicable. For the purposes of calculation the day of purchase is considered Day 0. Day 1 begins the day after the date of purchase.  The short-term trading fee may be applicable to each purchase of each ETF where such ETF is sold during the holding period. The short-term trading fee may be more than applicable standard commissions on purchases and sells of ETFs that are not commission-free.

TD Ameritrade receives remuneration from ETFs that participate in the commission-free ETF program for shareholder, administrative and/or other services.

No Margin for 30 Days. Certain ETFs purchased commission free that are available on the TD Ameritrade ETF Market Center will not be immediately marginable at TD Ameritrade through the first 30 days from settlement. For the purposes of calculation the day of settlement is considered Day 1.

*Advisory services are provided by TD Ameritrade Investment Management, LLC (“TD Ameritrade Investment Management”), a registered investment advisor. Brokerage services provided by TD Ameritrade, Inc. TD Ameritrade Investment Management provides discretionary advisory services for a fee. Risks applicable to any portfolio are those associated with its underlying securities. For more information, please see the Disclosure Brochure (Form ADV Part 2A).

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