How do you make money with ETFs?

How do you make money with ETFs?

You can make money with exchange-traded funds through capital gains and dividends. ETF share prices may increase making the value of the fund more valuable. Additionally, some ETFs pay distributions known as dividends or cash payments to investors.

Imagine, investing in a well-diversified portfolio with one click. You are making money with exchange traded funds and it couldn’t be simpler.

Exchange-traded funds are probably the easiest ways investors build wealth.

Luckily for you, I’m going to show you how to make money with ETFs. I’ll show you how you get paid, some of the best ETFs, and make the process simple. Investing doesn’t have to be complicated and ETFs are perfect for beginners.

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Can you make money with ETFs?

It is possible to make money with exchange-traded funds. ETFs are a security which trade like stocks on the stock market, but are more diversified than individual stocks. It is easier to make money with an ETF because you are not dependent on the performance of one stock.

You can think about it as taking the guesswork out of investing. I would assume that none of us were taught in school about how to choose individual companies to invest in. Exchange traded funds invest in multiple stocks for a specific fund goal.

When you pick an individual stock, your performance is based on the individual stocks performance. Your portfolio isn’t diversified by picking one individual stock. Some scandal could tank the share price tomorrow and your portfolio would suffer.

Exchange traded funds diversify the process so you don’t have to think about it. You buy one exchange traded fund with a bunch of great companies behind it. Should bad news hit one company in the fund, you would hardly notice because you own other great companies.

So it’s easier to buy great funds like the S&P 500 where you know you’re investing in great and quality companies. Buying the S&P 500 gets you access to the top 500 companies in the US. When the top 500 companies do well, so do you. When the top 500 companies do poorly, so do you.

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How do you make money with ETFs? 

The two ways that exchange-traded funds make money are through capital gains and dividend payments. Share price may increase or decrease over time or you may receive a cash payment. Investors make more money depending on the amount of money invested through compounding returns.

Capital gains are simply increases or decreases in share price. For example, you could buy an exchange traded fund for $100 and sell it next week for $120. You earned $20 worth of capital gains.

Most investors are chasing capital gains. They invest in companies or exchange-traded funds where they believe the price may increase over time.

Some exchange-traded funds will also pay a dividend. A dividend is a cash payment made to investors for holding the share. Some investors choose to focus on dividend paying funds and are known as income investors.

However, what is important is building up your investments. The more money you have invested, the more money you can generate with returns.

For example, you could invest $10,000 in the S&P 500, but a 10% return on investment is only $1,000. However, imagine having $100,000 or even $1,000,000 invested. Now you are generating $10,000 or $100,000 on a 10% return on investment. 

Investors need to realize that the stock market traditionally goes up over time. Therefore, your chances of making money in the stock market are greater if you are a buy-and-hold investor. In other words, you aren’t actively trading your stocks and you intend to hold for years and years. 

Are ETFs good for beginners?

Exchange-traded investing is perfect for the first time investor because ETFs manage risk through diversification. ETF investing provides a simple buy-and-hold style of investing where novices don’t have to keep up with the stock market. Beginners can simply buy month after month without having to think about their Investments.

Most exchange traded funds are very well diverse. Unlike picking individual stocks, exchange-traded funds are comprised of multiple, if not hundreds or thousands of stocks. Therefore, by buying one individual ETF you are being exposed to multiple stocks.

For example, purchasing a single share of VOO invests your money in the S&P 500. The S&P 500 is made up of the United States top 500 stocks. With the exchange traded fund, I get access to the top 500 stocks without actually having to go out and purchase each stock.

The thing I like most about exchange-traded funds is the simplicity. You should always know what you are investing in before putting money into the stock market. However, exchange-traded funds simplify everything.

Each exchange traded fund has a goal. It is important for you to understand what each fund’s goal is prior to investing. For example, is the fund an income or growth fund?

Although, most investors will start off with something basic like an S&P 500 fund. For many investors, the S&P 500 is enough to get started.

Once you have decided on a core group of exchange-traded funds, all you need to do is buy. You don’t have to keep up with the latest company. You know every time that you invest, which  ETFs you are going to invest in.

It is as simple as saying I have $500 to invest, so I’m buying $500 worth of S&P 500.

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Summary: How do you make money with ETFs?

As you can see, it is possible to make money with exchange-traded funds. As a matter of fact, a lot of people are building wealth everyday by simply buying ETFs. Exchange traded funds trade like stocks, but they are more diverse and take the guesswork out of investing.

You make money with exchange-traded funds through capital gains or dividends. Most investors are looking for share prices to increase, known as capital gains. However, some investors are looking for cash payments called dividends.

The more money you have invested, the easier it is for you to make money. Compounding returns are when your money begins to make you even more money. For example, you make more money having $1,000,000 invested than with $10,000 invested.