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Can You Be A Millionaire With ETF Alone?

A detailed look at the options available in exchange traded funds and how you can make money out of them

If you are an investor, you would be wondering where to invest your money so that you can lead a comfortable life later. With the bank interest rates plummeting rapidly, it may not be wise to rely only on bank fixed deposits. With inflation too surging, even if you get returns of 7 per cent, it might not be enough later in your life.

The current rate however is hovering around 4 to 5 per cent and is not covering inflation effectively. That’s perhaps the reason why people are looking for alternative options to invest their money. Some of them have moved to direct stock investment, while some others prefer a bit more mutual fund route.

However, the returns from the stock market depend a lot on the rise in indices. If it goes up, the investor can make money but if it reverses the trend, like what we have witnessed recently, you are bound to lose money as well. So, it is very important for you to select the options wisely and judiciously.

Because at the end of the day it’s your money and how successfully you have invested determines your success as an investor. So, let’s discuss some investment options for you today and the topic today is ETF or exchange traded fund. Let’s see what it is and how good it is and how you can make money out of it.

What is ETF?

An ETF is a type of security that tracks an index, sector, commodity, or other assets. You can buy or sell it on a stock exchange – just the same way you will buy or sell a stock of a company. Let’s take the example of SPDR S&P 500 ETF (SPY). Here SPY tracks the S&P 500 Index.

Unlike mutual funds, the price of ETF shares fluctuates throughout the day, depending on how a particular ETF is bought or sold. In the case of mutual funds, it trades once a day after the close of the market.

Another advantage of ETF is that it provides low expense ratios and fewer broker commissions. When you prefer to buy stocks on your own the broker commissions can be higher.

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Can you be a millionaire with ETF alone?

ETF can be specific for sectors, like banking, infrastructure, real estate, pharma, etc. If you are going for a banking-focused ETF, it mainly contains shares from different banks in the region.

There are several types of ETFs available in the market, including Bond ETFs, Stock ETFs, Industry ETFs, Commodity ETFs, Currency ETFs, Inverse ETFs, etc. It simply means that ETFs are available for different sectors and it is up to you to invest in a particular ETF after conducting thorough research.

It is important for you to conduct a study on any sort of investment because you are putting in your hard-earned money and you have to ensure that it won’t go to waste.

How can you start ETF investment?

You can invest very easily in ETFs. As a first step you have to find an online investing platform, including investment apps like Robinhood. Investing through many of these platforms are free but you have to read their instructions properly before putting your money. You can purchase ETFs via traditional brokers as well. Let’s take a look at some of the popular ETFs.

1) The SPDR S&P 500 (SPY) is a very popular and experienced ETF that tracks the S&P 500 Index.

2) The iShares Russell 2000 (IWM) tracks the Russell 2000 small-cap index.

3) The Invesco QQQ (QQQ) indexes the Nasdaq 100.

4) The SPDR Dow Jones Industrial Average (DIA) represents the 30 stocks of the Dow Jones Industrial Average.

Conclusion

Though EFTs can be a good investment, your entry is also very important in all stock-related investments. If you buy a stock at a very high price when the market was at its peak, you might not earn much when compared with an entry at a lower price. Similarly, you have to time your entry perfectly while choosing an ETF. ETFs provide lower average costs.

One main advantage of ETF is that as an investor you can get access to many stocks across various industries. Your risk is also relatively low considering the level of diversification.

When you consider the disadvantages, it has to be noted that all actively managed ETFs charge higher fees and if the ETF is concentrating on a single industry, chances are that a dip in the fortunes of that particular industry will harm your chances of making a good return.

If you have invested a considerable amount at the right time, your chances are bright to become a billionaire, provided that your entry at the successful ETF was right.

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