How much money can I make from ETFs?
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.
If you can shave off $10 per day in costs, or $300 per month, and regularly invest that into a growth-focused exchange-traded fund (ETF), you can eventually have a portfolio worth more than $1 million.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
To make $1,000 per month on T-bills, you would need to invest $240,000 at a 5% rate. This is a solid return — and probably one of the safest investments available today. But do you have $240,000 sitting around? That's the hard part.
Key Takeaways
For most ETFs, selling after less than a year is taxed as a short-term capital gain. ETFs held for longer than a year are taxed as long-term gains. If you sell an ETF, and buy the same (or a substantially similar) ETF after less than 30 days, you may be subject to the wash sale rule.
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.
Visit your My NerdWallet Settings page to see all the writers you're following. RDIV and SPYD have some of the highest yields of any high-dividend ETF. It's possible to live off the income from high-dividend ETFs, but it may take some planning.
Key Points. Billionaire investors like Warren Buffett and Ray Dalio are known for their stock-picking skills. Both of these heavyweights own ETFs, as well, with Dalio, in particular, holding large positions. Here are the 4 ETFs Buffett and Dalio trust with their money and the key information about each.
| Symbol | Name | 5-Year Return |
|---|---|---|
| XLG | Invesco S&P 500® Top 50 ETF | 15.11% |
| ONEQ | Fidelity Nasdaq Composite Index ETF | 15.06% |
| HEWJ | iShares Currency Hedged MSCI Japan ETF | 14.94% |
| DSTL | Distillate US Fundamental Stability & Value ETF | 14.91% |
What will $1 000 be worth in 20 years?
| Discount Rate | Present Value | Future Value |
|---|---|---|
| 17% | $1,000 | $23,105.60 |
| 18% | $1,000 | $27,393.03 |
| 19% | $1,000 | $32,429.42 |
| 20% | $1,000 | $38,337.60 |
If you invested $10,000 with founder Elon Musk 10 years ago, your stake would be worth $2.1 million now. That works out to a more than 70% average annual return. The same $10,000 put into the S&P 500 during that time grew just 274% to $37,376. That's just 14% compounded annually.
If you invest $10,000 today at 10% interest, how much will you have in 10 years? Summary: The future value of the investment of $10000 after 10 years at 10% will be $ 25940.
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A well-constructed dividend portfolio could potentially yield anywhere from 2% to 8% per year. This means that to earn $3,000 monthly from dividend stocks, the required initial investment could range from $450,000 to $1.8 million, depending on the yield.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
If you buy substantially identical security within 30 days before or after a sale at a loss, you are subject to the wash sale rule. This prevents you from claiming the loss at this time.
At least once a year, funds must pass on any net gains they've realized. As a fund shareholder, you could be on the hook for taxes on gains even if you haven't sold any of your shares.
The top reasons for closing an ETF are a lack of investor interest and a limited amount of assets. For example, investors may avoid an ETF because it is too narrowly-focused, too complex, too costly, or has a poor return on investment.
Thankfully, there are some stock ETFs that do pay dividends on a monthly basis. They're definitely in the minority, but there are enough where you can actually build a pretty diversified portfolio using just monthly pay stock ETFs. Whether stock ETFs pay monthly dividends usually comes down to the issuer.
Do you pay taxes on ETFs?
For ETFs held more than a year, you'll owe long-term capital gains taxes at a rate up to 23.8%, once you include the 3.8% Net Investment Income Tax (NIIT) on high earners.
Though ETFs allow investors to gain as stock prices rise and fall, they also benefit from companies that pay dividends. Dividends are a portion of earnings allocated or paid by companies to investors for holding their stock.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends. With a lower portfolio balance of $1 million, you would need to target an average yield of 5%.
For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.
