Hey everyone. Welcome back to another blog post. Today I’m going to be show you how to build an ETF portfolio with 100.
This is going to be a step-by-step A to Z guide for beginners who want to start investing in ETFs.
ETFs are known to be best stock Investments and it’s truly an asset that everyone who wants to become a millionaire should have. later on in the
I’ll be guiding you through some platforms that will actually give you some free stocks to start out.
Let’s get started about What are EFTs?
What are ETFs?
ETF stands for Exchange Trade funds. ETF is basically a type of pooled investment security. It’s a basket of stocks so by buying ETF you’re essentially holding multiple assets rather than buying one particular stock and only being invested in that one company.
Usually ETFs are going to track a particular index, a sector or a type of commodity. The whole point is by buying one ETF, you’re buying one basket full of different stocks or asssets.
Now a great thing about ETFs is that they can actually be bought or sold on a stock exchange just like normal stocks and so they are very very easy to buy and sell.
For example, I like tech stocks and I want to buy one Apple share. When you buy that one Apple share you are only invested in one particular company i.e., Apple. However if you really like tech stocks and you want to invest in multiple tech stocks all at once. One thing you can do is actually buy a tech ETF. By buying that, your money is basically essentially spread out over many different tech companies.
Another great thing about ETFs is that many of them out there on the markets actually offer really low expense ratios. Expense ratio is the fee you’re paying to the company to basically handle that ETF. For example, a one percent expense ratio is going to mean that for every $100 you have in that ETF they’re going charge you a one dollar fee per year. It doesn’t charge that much but there are many who charge as low as like 0.03 percent
Another great thing about ETFs is that they tend to be more cost effective and more liquid compared to mutual funds and index funds. As an investor, buying and holding ETFs can be a very smart and low-cost strategy to build generational wealth without taking on as much risk.
Pros and Cons of EFTs
Let’s go over some of the pros and cons.
|Low Expense Ratio||Actively managed ETFS have higher fees|
|Safer than individual stocks because of diversification||Not all specific industries have ETFs|
|Performs across different baskets within specific sectors||Not ideal for people that want to trade stocks and take higher risks.|
|Efficient with taxes-Long term & investing and holding||Lower dividend yields than individual stocks.|
It costs very very little to hold these ETFs. ETFs are also usually safer than individual stocks because you are basically diversifying, so you’re spreading out the risk over multiple companies. If one particular company goes out of business then you’re not going to lose all your money.
You’re basically holding your eggs across different baskets within specific sectors. Holding ETFs can be very efficient when it comes to taxes especially when you go into long-term Investing for periods of one year or more
There are some actually manage ETFs that do have higher fees than our low-cost ETFs. You should be aware of those. Not all specific Industries have ETFs, they’re also not ideal for people that want to trade stocks and take higher risks .
There are also ETFs in more risky sectors and industries but overall these ETFs are always going to be less risk than holding individual companies.
If you want high dividends, there are some high dividend ETFs out there but in general your dividend yields are going to be lower than holding particular individual stocks that do pay high dividends.
What is the difference between the ETFs and an Index Funds?
ETFs can be traded throughout the day. When ETFs are sold the capital gains and losses are actually sent straight to the stockholder. ETFs also usually have lower minimum Investments so you can really get started with as low as like a few dollars. They are also going to be more tax efficient than most index funds.
These can only be traded at the end of the trading day because the next funds are only traded once per day as a result they are a little bit less liquid than holding ETFs. When index funds are sold, the fund may have to sell stocks to pay investors for the shares.
Index funds also usually have more fees from the constant rebalancing. It is a bit more complicated and that leads us to the question which one is going to be better.
Which is Better : ETFs or Index Funds?
For most beginners it is actually recommend just getting started with ETFs. A lot of index funds actually have minimum requirements in terms of how much money you put in. For example, a lot of the Vanguard index funds out there actually have a three thousand dollar or more minimum investment grasp for ETFs.
You can trade with much less you can even buy partial shares on certain platforms if you want. You can’t go wrong with either of these.
Types of ETFs
There are two main types of ETFs:
- Passive ETFs
- Active ETFs
Passive EFTs are aiming to replicate the performance of a broader or more diverse index.
For example, the S&P 500 are ETFs that actively track and try to mimic the S&P 500. When you buy one share of that ETF you’re basically investing in the whole S&P 500. Two very popular ones are VOO and SPY.
2. Active ETFs
These ones actually have portfolio managers that are making decisions about which securities to include in the portfolio. A very famous example of one of these is going to be the ARK Innovation ETF. Usually there’s a public figure or investor that’s at the head of these types of ETFs. They’re actively managing the portfolio of companies within that UTF. It’s going to have higher fees than the passive ETFs.
How to pick up Right ETF?
When it comes to picking the right to ETF. There are definitely some things that you should be looking at:
- The expense ratio is going to be the most important thing for most people especially because these fees can really add up and compound over time.
- Not to invest in any funds with an expense ratio that’s higher than one percent. Basically at one percent every hundred dollars is going to cost one dollar a year in management fees. Similarly, every one thousand dollars is going cost ten dollars a year in expenses.
As you get bigger with your portfolio size it’s going to really add up. So, a one hundred thousand dollar portfolio is going to cost a thousand dollars in fees every single year. It doesn’t seem like a large amount maybe for some of the lower numbers but even if you look at it and see the growth over time.
You’ll see that any expense ratio does sort of add up and just like we have compound growth for gains we also have compound growth for fees.
- Another thing you want to look at is the level of assets.
- A good threshold is going to be at least 10 million dollars in assets within that ETF. That just shows that there is investor interest and decent liquidity in the ETF.
There’s not that much liquidity that means not too many people are buying and selling so it is going to be harder to eventually sell out of your position. If an ETF has good liquidity you can be confident in your ability to sell your shares on the market on a future date.
- Another thing to consider is the niche. It’s really good to consider what the ETF tracks in the market this is very important. It’s generally better to invest in ETFs that track broad markets with volume rather than ones that track really narrow Industries
3 Popular ETFs
These are some of the most popular ETFs that many many people invest in. For most beginners, if you have zero idea you know what you want to invest in these are going to be some good choices.
(SPDR S&P 500 ETF Trust)
(Vanguard Total stock market ETF)
( vanguard S&P 500 ETF)
|Net Assets||358.23 Billion||1.17 Trillion||753 Billion|
|3 Year Daily Total return||10.81%||10.30%||10.82%|
|Up Time||751.66% since 1993||225.82% since 2001||239.33% since 2010|
1. SPY (SPDR S&P 500 ETF Trust)
This tracks the S&P 500 and you can see the current expense ratio is 0.09%, that is three times higher than the two Vanguard funds. It is still very low. They have really good net assets of above 350 billion dollars and and they have a three-year daily total return. If we look at the growth since its inception in 1993 we can see that it’s 751.66% up.
2. VTI (Vanguard Total stock market ETF)
This one tracks the broad U.S stock market as a whole. It has a very low expense ratio of just 0.03 percent. They haven assets over one trillion dollars so this one is very liquid. It’s very very popular and if you look at the three year daily Total return that’s at 10.3 percent and it’s up 225.82% since its Inception in 2001.
3. VOO ( vanguard S&P 500 ETF)
This has the most of my money in it. Basically, it tracks the S&P 500, the 500 largest companies in the US. It also has a very low expense ratio of just0.03%, great Net assets and the three-year daily total return is 10.82%. It’s grown about 240% since its Inception in 2010.
There used to be much High fire but of course we’ve seen some pretty big pullbacks in the stock market. That’s why all the gains are not as big as they once were but that doesn’t mean it can be a pretty good time to buy.
How to get started with EFTS?
You can actually get started investing in ETFs with as low as a hundred dollars so first you’re going to:
- Sign up for a brokerage that allows you to buy and sell stocks.
- .For a lot of beginners, I just recommend going with something like Webull. They’re super good and super easy.
- There’s also another platform called MooMoo. It has zero commission fees, very easy to use, lots of powerful tools and they’re also giving out a ton of free stocks when you sign up and make your first deposit.
- Sign for both Weeble and MooMoo if you haven’t already you’ll get a ton of free stocks and that’s really want to kick start your portfolio.
This a Webull application image pulled up on my phone. I’m just going to show you guys how you can actually you know purchase your first ETF.
Now, have SPY open on my accounts. This is going to be one of the most popular ETFs that a lot of beginners get and basically what you’re going to do is you’re going to come here to trade and here’s where we’re going to actually be able to buy our first shares. We want to make sure that we’re on buy versus sell
Make sure you’re on buy. You’re going to select your order type. There are many different types of Market orders but just to make it easier and to be able to give the option of buying fractional shares. I recommend just going with Market.
Then, select the amounts I want to buy you can see one share of SPY is trading at about 389 dollars. If you don’t have that much money to buy one tire share, you can do fractional shares with Webull. That’s going to be a fractional order, it’s going to tell you your estimated amount is 76.77 and from there you’re going to click buy and then click confirm.
So, now I have MooMoo pulled up here. I’m on VOO. This is the Vanguard S&P 500 ETF that we recently covered. This is also a really really great program probably with more features than Weeble. For beginners it doesn’t really matter too much.
You can see one’s share of this is trading at 340.97 so what we’re going to go do is Click trade down here. After that we’re going to select the order type so you guys can do a limit order. If you want to get the absolute best price or you can just do a market order to buy it right now.
Enter the quantity of this ETF that you want to buy so you can use the plus arrows and let’s say you want to buy one. With MooMoo you can’t unfortunately do partial shares at least for most stock. Then you’ll click on “Buy”.
It’s going to have enter in your passcode so after that you are going to click buy again and then click confirm. It is super easy to do. Both these apps allow you to really buy these ETFs very easily.
Alternatives to ETFs
When it comes to investing just want you guys to know that you don’t need to only invest in stocks. There are plenty of other things you can invest your money. Investing all your money into a single asset because that’s putting all your eggs in one basket, something could go wrong and that won’t end up too well.
- You can invest in yourself in your own business, in your education, books and skills you can buy courses.
- You can buy coaching.
- You can invest in networking
- You can buy real estate crypto.
There’s so many assets out there that you can invest and diversify your money with in terms of the absolute highest ROI, that’s always going to be investing in yourself . Alongside, investing your money in 18s you have some stocks. Put some of your money into yourself.
In terms of building your wealth. There are so many things you guys should be doing. Not only should you guys be getting the ball rolling when it comes to investing. You should also be focusing on how you can actually increase your income through valuable skills and habits
That is going to be absolutely your biggest ROI (return on investment) as you make more money. As you know prioritize increasing your income. This is going to give you more money that you can invest in ETFs and other stocks.
Skills and experience will outperform any ETF or Index Fund regardless of the economy that’s why you should be passionate about self-improvement and Entrepreneurship.
Taxes related to ETFs
Taxes are important and it’s important that we know how they work especially when it comes to buying and selling ETFs. Essentially ETFs that are held for more than a year are actually taxed at the long-term capital gains rate.
On the other hand, ETFs that are held less than a year are taxed at or income rates . For most people the ordinary income rates are going to be substantially higher than the long-term capital gains rates that’s why it just makes a lot of sense to hold whatever you invest in longer than one year now.
Some of my final thoughts so before investing in anything do your own due diligence and you want to invest at least one hour of research into any asset you buy.
For example, you guys want to buy some VOO, you need to look into it and look at you know, what companies are held like at the S&P 500. If that’s something you believe in maybe look at Vanguard as a company.
Just make sure you know what you’re getting yourself into. Don’t ever invest more than you can actually afford to lose. The biggest thing is that you just don’t panic. Sell when things are down. Lot of people have lost money on paper if they purchased recently.
If we look at the long term they are going to do perfectly fine. That’s why I encourage you guys to go for the long term. Buy something, forget about it and just become a millionaire.
By putting in small amounts of money consistently every week or every month into your stock portfolio.
You’ll win sometimes but you’ll also lose sometimes and I guarantee you it’s probably not going to be worth it for almost a hundred percent of you guys.
Invest that time into building up your own business and increasing your income. That’s going to pay off way more than you know stressing over what stocks you’re buying.
Just pick an ETF that tracks some type of index that you believe in make sure it has a low expense ratio. Use a platform like Weeble or MooMoo to buy it and then just hold it for as long as you can now.
Historically, how investors have won and that’s likely going to be the way that you guys win as well. If you get the ball rolling as soon as you can at a young age you’ll be so glad that you did it in 20, 30, 40 years.
So, I hope you guys enjoyed this blogpost about how to start making money with EFTs with just $100. Please do not forget to share this blog post with your Family and Friends so they can also take advantage of some good piece of advice related to investing in ETF.
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Thanks for reading, Happy investing!