Can you become a millionaire by investing in ETFs?
Yes, you could realistically become a millionaire by investing in these Vanguard ETFs over the long term. Granted, there's no guarantee that the returns generated by these ETFs in the past will be achieved in the future.
Making a million bucks with Vanguard's S&P 500 ETF
It returned an average of 9.4% annually from 1972 to 2021. Thanks to its dividend-paying components, the Vanguard S&P 500 also pays a dividend that yields 1.4%.
“When you're ultra wealthy you do have access to some unique investment opportunities, but the vast majority of ultra wealthy people's portfolios consist of index funds, ETFs, and mutual funds, and maybe some sector funds,” she says.
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
Average ETF returns vary, but on average, you should expect to generate an annualized return of 7-10% over a ten-year period. Investors must also understand that ETFs will not always produce positive returns each year.
You can make money from ETFs by trading them. And some ETFs pay out the money the ETF makes to investors. These payments are called distributions.
| Symbol | Name | Dividend Yield |
|---|---|---|
| NIKL | Sprott Nickel Miners ETF | 21.38% |
| MAXI | Simplify Bitcoin Strategy PLUS Income ETF | 20.46% |
| TLTW | iShares 20+ Year Treasury Bond BuyWrite Strategy ETF | 19.46% |
| AIYY | YieldMax AI Option Income Strategy ETF | 18.55% |
Warren Buffett has long recommended the S&P 500 index fund and ETF, and through his holding company Berkshire Hathaway, he also owns two of these types of investments: the Vanguard S&P 500 ETF (VOO -0.13%) and the SPDR S&P 500 ETF Trust (SPY -0.19%).
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.
No matter how much their annual salary may be, most millionaires put their money where it can grow, usually in stocks, bonds and other types of stable investments. Millionaires put their money into places where it can grow, such as mutual funds, stocks and retirement accounts.
How much do I need to invest to make $1000000?
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
1: Simply let compounding work its magic. Over the long haul, the stock market has provided average annual total returns somewhere in the neighborhood of 10%. If the future ends up like the past, $100,000 would grow into $1 million in just over 24 years from compounding alone.
Dividends and interest payments from ETFs are taxed similarly to income from the underlying stocks or bonds inside them. For U.S. taxpayers, this income needs to be reported on form 1099-DIV. 2 If you earn a profit by selling an ETF, they are taxed like the underlying stocks or bonds as well.
An exchange-traded fund (ETF) includes a basket of securities and trades on an exchange. If the stocks owned by the fund pay dividends, the money is passed along to the investor. Most ETFs pay these dividends quarterly on a pro-rata basis, where payments are based on the number of shares the investor owns.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
Typically either quarterly or monthly.
ETFs can be a great investment for long-term investors and those with shorter-term time horizons. They can be especially valuable to beginning investors. That's because they won't require the time, effort, and experience needed to research individual stocks.
By investing the same dollar amount in an ETF every month you will accumulate more units at a low price and fewer units at a high price. Over time, this approach can pay off handsomely, as long as you stick to it.
The reigning king
The SPDR S&P 500 ETF Trust (SPY) remains at the forefront of S&P 500 ETFs, boasting an impressive $478 billion in assets under management (AUM). Remarkably, this ETF celebrated its 31st anniversary on January 22, 2024, coinciding with the day the S&P 500 index reached its recent all-time high.
- VanEck BDC Income ETF (BIZD)
- PGIM Floating Rate Income ETF (PFRL)
- JP Morgan Nasdaq Equity Premium Income ETF (JEPQ)
- iShares Select Dividend ETF (DVYE)
- iShares 20+ Year Treasury Bond Buywrite Strategy ETF (TLTW)
- Global X MLP ETF (MLPA)
- Invesco KBW High Dividend Yield Financial ETF (KBWD)
Should I put most of my money in ETFs?
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
Warren Buffett has long recommended the S&P 500 index fund and ETF, and through his holding company Berkshire Hathaway, he also owns two of these types of investments: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
Vanguard, BlackRock, and State Street dominate the ETF market with the most offerings.
Buffett's favorite ETF
There are only two ETFs in Berkshire Hathaway's (NYSE: BRK. A) (NYSE: BRK.B) portfolio: the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard 500 Index Fund ETF (NYSEMKT: VOO).
There are many ways an ETF can stray from its intended index. That tracking error can be a cost to investors. Indexes do not hold cash but ETFs do, so a certain amount of tracking error in an ETF is expected. Fund managers generally hold some cash in a fund to pay administrative expenses and management fees.
