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Writer's pictureChristian P

How to Build a $1 Million Portfolio with ETFs


Million portfolio with ETFs

In today's world, the amount of people who are becoming millionaires is increasing. The vast information that surrounds us is greater and greater each day. But how do you utilise that information to give you an advantage and being able to build a $1 Million Portfolio?


To build your investing account it is important that you follow these steps. The goal here would be to reach $1 Million. This plan may vary according to how much you can deposit each month and how well the financial market performs.


I will outline this plan with averages so you know that reaching 1$ Million can take more or less time based on these figures.


Steps


  1. Understanding ETFs


    Before diving into the strategies, it's essential to understand what ETFs are. ETFs are investment funds that trade on stock exchanges, much like individual stocks. They hold a basket of assets, such as stocks, bonds, or commodities, which give investors exposure to a broad range of securities within a single fund. ETFs are popular because of their low fees, tax efficiency, and the ability to be traded throughout the day.


  2. Buying index funds ETFs


    For this plan, the idea is to have your portfolio (Group of investments) invested only in ETFs. Due to the reason explained in point 1, ETFs are excellent safe investments that will allow you to get to that $1Million faster and more importantly with less risk on the table. To begin with, I recommend ETF's that follow major countries' economies and have performed well in the past with average returns of 9%. For instance, you can invest in ETFs that follow the S&P 500 like SPY, VOO. An ETF that groups all major dividend stocks like SCHD or ETF that has all the big tech stocks like QQQM.


  3. Frequent Deposits.


    The more deposits you make to your investing account the quicker you will reach the goal of 1$ Million. This will depend on how much you have available at the moment to invest and your monthly income. A good rule of thumb would be depositing 10%-20% of your monthly income into investing. Let's say you have a salary of $70,000 per year, that would be $5,8334 per month. So you can make deposits of $1,166 to your investing account and set up this payment as a direct debit so you are making sure you are staying disciplined.


  4. Compounding


    Compounding is the backbone of investing. Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Check my compound interest calculator to give you an idea of how long it will take you and what would be your monthly deposits


  5. Monitor Performance and Adjust as Needed


    While it's important to stick to your investment plan, it's also crucial to monitor your portfolio's performance periodically. Make adjustments if your circumstances change, such as nearing retirement, changes in financial goals, or shifts in market conditions. However, avoid overreacting to short-term market fluctuations.


  6. Dollar-cost averaging


    Consistent contributions to your portfolio are crucial for growth. Even if you start small, regular investments can compound over time. Dollar-cost averaging (DCA) is an effective strategy where you invest a fixed amount at regular intervals, regardless of market conditions. This approach reduces the risk of investing a large sum at a market peak and helps smooth out the cost basis over time.


  7. Re-investing


    It is crucial if you want to reach your 1$ Million goal that you do not withdraw anything and for every single profit you have made from your ETFs, you reinvest them in your account. The key here is to make the most out of compounding and the more you have the quicker you will reach 1$Million.


  8. Stay committed and patient


    Building a $1 million portfolio takes time and discipline. Markets will experience ups and downs, but staying committed to your strategy is key to reaching your goal. Remember, investing is a long-term endeavour, and patience is often rewarded.


Building a $1 million portfolio with ETFs is a very achievable goal with the right strategy, discipline, and time. By understanding your risk tolerance, diversifying your investments, and staying committed to regular contributions, you can steadily grow your wealth. Remember, the key to success is not just the choice of ETFs, learn how to choose the best ETFs here, but also the consistency of your investments and the patience to let your portfolio grow over time.




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