ETF Investing for Beginners: START HERE! (Simple Wealth Building)

So, everyone always talks about ETFs,

but nobody really says what the heck an

ETF actually is so that we could

understand it. In this video, I'll be

going over what an ETF is and why it

matters to you as an investor. It's

absolutely the most simple way to invest

and takes all the guesswork out of it so

that you can focus on what matters in

your life. And I doubt that has anything

to do with the stock market or reading

charts or finance reports all day. I'll

also clear up some common questions like

what is the difference between an ETF

and an index fund and which one is

better. By the end of this video, you'll

be well informed so you can become a

better investor and that's my goal here

on this channel. So, if you don't know

exactly what an ETF is, don't worry.

You're probably in the majority, but

after this video, you are going to be an

expert. Here are some basics so that you

can understand. ETF is an exchangeraded

fund and it's basically like an index

fund but traded like a stock. But for

now, for all intents and purposes, ETF,

index fund, synonymous, basically the

exact same thing. So when you invest in

a stock, say that stock is $50. And then

you own one stock of that one company.

So now you own $50 in that company. 100%

of your portfolio is invested in that

company. So 100% of that $50 is that

stock. An ETF holds multiple stocks in

one basket. The ETF itself is going to

cost a certain amount just like one

stock of a certain company is going to

cost a certain amount. So let's look at

QQQ, which is one of the best growth and

technology ETFs out there. QQQ has a

price today of $530.70.

QQQ has 100 companies within the ETF. So

if you buy one share of QQQ, you now own

a small piece of 100 companies. When we

look at the fun facts on Invesco QQQ's

actual website, you can see that we have

101 actual holdings within QQQ at this

point. When we look at their top 10

holdings within the ETF, it's got

Microsoft at 8.65%,

Nvidia at 8.56%,

Apple at 7.58%,

Amazon at 5.6%,

Broadcom at 4.74%.

And then the next five in the top 10 are

Meta Netflix Costco Tesla and

Alphabet or Google. The top 10 holdings

in this are 50% of the entire fund. So

even though there's over a 100

companies, the top 10 take up half of

this fund. So to put it all together,

since you own one share of QQQ, which is

$530.70,

when you actually break down what's

inside of that share, you just multiply

the percentage of the holding by however

much the ETF is worth. So as far as

those top three in Microsoft, since it's

8.65%, 65% you actually own $45.85

in Microsoft. In Nvidia you own $4543.

In Apple you own $4028.

To figure out the rest of it, you would

just do the math this exact same way.

There are so many types of ETFs out

there like like totally broad market

type ETFs that cover the entire US stock

market or it could be the entire

international stock market. There's also

ETFs that have very very niche type

sectors like technology or healthcare.

And then there's specifically growth

type funds or dividend investing funds.

Everybody's portfolio might be a little

bit different. And that's totally okay.

It's probably not your best move to just

copy somebody's portfolio just because

for them it's working out. And you'll

see why by the end. So once you start

getting into investing and you start

listening to people talk about investing

or reading about investing, you're going

to see these two different categories.

Something called an ETF and then

something called an index fund. Probably

also see things called mutual funds and

individual stocks and all these other

things. But the things that are the

closest are the idea of the ETF versus

the index fund. The biggest difference

between ETFs and index funds is that

ETFs can be traded throughout the day,

like stocks, whereas index funds can be

bought and sold only for the price set

at the end of the trading day. For

long-term investors, which most of you

probably are, and I know I am, this does

not really matter. Buying or selling at

10:00 a.m. versus noon, is not really

going to change the difference,

especially 10 years from now. The couple

pennies that you save or that you gain

today don't really matter compared to

the dollars or hundreds of dollars or

thousands of dollars down the road. If

you're interested in intraday trading,

ETFs may better suit your needs. They

can be traded like stocks, yet investors

can still reap the benefits of

diversification. ETFs may also have

lower minimum investments and be more

tax efficient than most index funds.

Despite their differences, index funds

and ETFs do have a lot in common,

including diversification, low cost to

invest, and strong long-term returns.

One big thing that you're going to hear

about a lot has to do with this idea of

capital gains tax. ETFs are more tax

efficient than index funds by nature

thanks to the way they're structured.

When you sell an ETF, you're typically

selling it to another investor who's

buying it, and the cash is coming

directly from them. Capital gains taxes

on that sale are yours and yours alone

to pay. To get cash out of an index

fund, you technically must redeem it

from the fund manager, who will then

have to sell securities to generate the

cash to pay you. When this sale is for a

gain, the net gains are passed on to

every investor with shares in the fund,

meaning you could owe capital gains

taxes without ever selling a single

share. This happens less frequently with

index funds versus actively managed

mutual funds. But from a tax

perspective, ETFs definitely have the

upper hand over an index fund. All of

that was very deep and in the weeds, and

for most of you, you're probably not

going to notice the difference between

the two. The big big difference between

the two is that ETFs are definitely

going to be more manageable as far as

being able to afford buying one share.

For example, one of the most popular

index funds out there is called the S&P

500 or the standard and pores index. And

the S&P 500 right now is a little over

6,000. But then there's an ETF called VU

VO that actually tracks the S&P 500. And

for this, it costs a little over $551

to own one share. It's the exact same

thing with almost identical returns

because that ETF VU tracks the S&P 500.

So, whatever the index fund does, the

S&P 500, VU is going to move at the same

exact pace. But to buy in at one share

of owning VU, you get to pay 10 times

less. Neither is better than the other.

Because at the end of the day, the way

that you look at your investments is

total money invested, not in how many

shares or of what specifically. For

example, if you were to buy one share of

VU, you'd have a little over $550

invested in the S&P 500. Then, if you

were to buy two shares of VU, that would

basically be $1,100 invested in the S&P

500. If you were to buy one share of the

S&P 500 index fund, you'd basically say

it like, I have $6,000 invested in the

S&P 500. So it's about total money

invested within the actual fund, not

really how you get it there. The other

thing is the ease with which how you can

actually buy this asset. On some

platforms, you can't really buy the

index fund itself, but on most

platforms, you can buy ETFs that track

the asset. There's multiple types of

ETFs and companies that own these ETFs

that can track the same underlying

index. So, for example, VU is one

version that tracks the S&P 500. Another

version of an ETF that tracks the S&P

500 is SPY, SPY. And there's multiple

ones out