Investing Your First $100 In ETFs

Learning how to invest is sometimes a scary thing to many people.   If you are young (or old) and have never invested before, determining where to start is difficult.  Most people new to investing think it takes thousands of dollars to get started.   That is not true.   If you open an investment account at Fidelity Investments, you can purchase ETFs and Stocks for just a few dollars at a time.

David Parham

4/11/20247 min read

INVESTING Your First $100 in ETFs

DISCLAIMER - I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you to make informed decisions on investing.  Consult a Broker or Lawyer before making any investment. 

 
Learning how to invest is sometimes a scary thing to many people.   If you are young (or old) and have never invested before, determining where to start is difficult.  Most people new to investing think it takes thousands of dollars to get started.   That is not true.   If you open an investment account at Fidelity Investments, you can purchase ETFs and Stocks for just a few dollars at a time.

Explanation of ETFs (Electronic Traded Funds)

Learning how to invest can be a daunting task for many individuals. Whether you are young or old, the idea of putting your hard-earned money into the stock market can be intimidating. However, it is important to note that investing does not always require a large sum of money. In fact, with just $100, you can start your investment journey using Exchange-Traded Funds (ETFs).

There is no reason you can not get started even with $10.  If you have only a few dollars, put it into full stock market indexes.   Two that do great are I-SHARES ITOT and Vanguards Total Stock Market ETF which is VTI.

Two of my earliest articles, I tried to explain the 4 main vehicles that are used to invest.  They include Stocks, Bonds, ETFs (exchange-traded funds), and Mutual Funds.  Now there are many other ways to invest than these, but these four make up a large segment of the stock market financial opportunities.  

To read about Stocks, ETFs, and Mutual funds, read here:

STOCKS, ETFS, and MUTUAL FUNDS

To Read about Bonds, read this article:  What is a bond.

Today I want to discuss ETFs in a bit more detail.   An Exchange Traded Fund is much like a stock.  With a Stock, you are effectively buying ownership into the company.  Say you like buying at COSTCO discount stores, you might go down and buy a few shares of that company’s stock. 

When you buy 10 shares, you become a minor partner in owning Costco.  If they pay dividends, each quarter (or yearly), you will receive a dividend check.   I don’t own Costco, but I own Walmart and McDonald’s.  

Both of these companies pay like 3% dividends, so if the stock was $20 per share, you would receive $6 per year in quarterly dividends for each stock share you owned.  So if you owned 100 shares, you would receive $600.  And on top of that, if the stock goes up in price when you sell your shares, you will have a capital gain from the difference.  

To prevent having to pay capital gains taxes, you can invest in an IRA (Traditional or Roth), and you never have to pay taxes on the gains in the ROTH IRA, and only pay them on the traditional IRA when you withdraw funds.  But IRAs are good ways to invest money.   Read about Both Types of IRAs

My wife and I both started off with Traditional IRAs, but have converted all of them to ROTH IRA’s so we never have to pay taxes on any money withdrawn.  When you put money into a ROTH IRA, you get no tax break.  But the biggest break of all is all that money comes back to you tax free when you retire or need it.

The ETF is based on some index or sector type.   There are 11 different sectors to invest in.
 
List of 11 Sectors

  1. Energy

  2. Materials

  3. Industrials

  4. Utilities

  5. Healthcare

  6. Financials

  7. Consumer Discretionary

  8. Consumer Staples

  9. Information Technology

  10. Communication Services

  11. Real Estate


ETFs are available over any one of those sectors, and then they can get very specific.      
This is just one type of industry inside Sector 2 above (Materials).  SLV is all the silver companies.   There is one on GOLD which is GLD. (SPDR GOLD SHARES).

So a person can identify what they want to invest in, and suddenly you are no longer at the whim of any one stock.  However, you may not reap the higher dividends of specific stock selection, but you are going to get a very consistent average over that sector/group you have chosen. 

If your goal is to invest in DGI stocks, you can still use ETFs.   I believe that DGI stocks and REIT (Real Estate Investment Trusts) are the two most promising of all the types of investments available today. 

DGI stands for Dividend Growth Stocks.  A few ETFs that specialize in those are:  NOBL  FDVV  SDIV DHS and my favorite LVHD.  Another great ETF for DGI investing is PFF, I-Shares Preferred Stock Income Sectors.  Preferred stocks are some of the better investments when given proper scrutiny.  

If you buy any of those ETFs, you are getting a broad range of Dividend Growth Stocks.  Will they give you an exact percentage each month?  No, but it is an average of all the stocks these companies chose to include in their portfolios.   So, each of these ETFs will provide varied returns.  

Consider buying ETFs that invest using covered call options for the highest yields.   Article on ETFs using Covered Calls.

How can you buy an ETF?   Well, you have to use a brokerage firm or some app that allows you to purchase the ETFs. 

Now be aware if you purchase the ETF outside of an IRA, then you will have to pay taxes on both the dividends and the capital gains as the stocks appreciate in value.  I do 99% of my investing inside of ROTH IRAs so I never have to pay any taxes on the dividends or the capital gains.

What is super about ETFs is they constantly change in value throughout the day, and they are totally liquid.   What I mean by that is that you can buy or sell them at any time the market is open.   If you need your money, they can be sold by simply opening your browser or app and issuing a transaction to SELL.  

Of course, it all depends on the market as to whether you will make or lose money.   But on the larger sectors like the FULL Stock Market ETFs like ITOT, VTI, DIA, and SCHB, I simply continue to buy even more on market dips.

You have to get in and get your feet wet to find out what works for you.  If you are unsure of what to buy, discuss it with your broker, accountant, or lawyer.  All of the ETFs I have mentioned today are very consistent performers, especially in good markets.     

I urge you to study and read a lot of resources.   I feel comfortable investing today as I have a feel for the market after years of study and some struggles.   I have no crystal ball and can not tell you if the market is going up or down.    Being as high as it is now, it may very well have a huge downturn in the upcoming year.    But putting some money in ETFs in a ROTH IRA is a very logical way to get some passive income.

So to get to the bottom line, where could you invest $100 and make decent returns?    I would put $20 in each of the following ETFs.

VTI

QYLD

XYLD

SDY

SPY

VTI will get you into the total stock market, QYLD and XYLD are two covered call ETFs for higher income, SDY gives you Dividend Stocks, and SPY is the S&P 500 total index.

You will want to expand out and get 30 or 40 different ETFs over time, but this is a good start.   I own all these, and they have performed well over the years.

What are ETFs?

ETFs, or Exchange-Traded Funds, are investment funds that are traded on stock exchanges, similar to individual stocks. They are designed to track the performance of a specific index, such as the S&P 500 or the Nasdaq. ETFs offer investors the opportunity to diversify their portfolio by investing in a wide range of assets, such as stocks, bonds, or commodities.

Why Choose ETFs?

There are several reasons why ETFs are a great option for beginner investors:

1.     Low Cost: ETFs typically have lower expense ratios compared to mutual funds, making them a cost-effective investment option.

2.     Diversification: By investing in an ETF, you are gaining exposure to a basket of securities, reducing the risk associated with investing in individual stocks.

3.     Liquidity: ETFs can be bought and sold throughout the trading day, providing investors with flexibility and the ability to react quickly to market changes.

4.     Transparency: ETFs disclose their holdings on a daily basis, allowing investors to see exactly what assets they own.

Getting Started with $100

Now that you understand the benefits of investing in ETFs, let's discuss how you can get started with just $100:

1.     Choose an Online Brokerage: There are many online brokerages that offer commission-free trading for ETFs. Some popular options include Fidelity Investments, Charles Schwab, and Vanguard.

2.     Open an Account: Once you have chosen a brokerage, you will need to open an investment account. This process typically involves providing personal information and funding your account with your initial $100.

3.     Research ETFs: Spend some time researching different ETFs that align with your investment goals. Look for ETFs that have a track record of consistent performance and low expense ratios.

4.     Make Your Investment: Once you have selected an ETF, you can use your $100 to purchase shares. The number of shares you can buy will depend on the current price of the ETF.

5.     Monitor and Rebalance: After making your investment, it is important to monitor the performance of your ETF and make any necessary adjustments to your portfolio over time.

As you get further into investing, read the articles listed below in Investments Articles on buying Preferred Stocks, REITs, and BDCs(Business Development Companies).

Always consult your attorney or investment professional before investing any money.   These are examples of some of my investments.

Investing your first $100 using ETFs is an excellent way to dip your toes into the world of investing. By choosing low-cost, diversified ETFs, you can start building your investment portfolio with a small amount of money. Remember to do your research, choose a reputable online brokerage, and monitor your investments regularly. Over time, as you gain more knowledge and experience, you can continue to grow your investment portfolio and work towards achieving your financial goals.
 
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