It’s quite common to get queries about the potential of exchange traded funds (ETFs) for wealth creation. The popular notion is that while ETFs represent a consistent and reliable path to grow one’s assets, they aren’t typically seen as a quick ticket to getting rich. How ‘rich’ you can become using ETFs is often a matter of how you define ‘rich.’
If you’re aiming for a colossal financial status, say, hundreds of millions or even billions, or if you fancy being on the rich lists, then the likelihood of reaching such heights solely through ETFs or share market investments is quite low. This level of wealth is usually associated with substantial inheritance or high-risk entrepreneurial ventures in specific, often niche, sectors.
Consider prominent Australian figures like Harry Triguboff, Andrew Forrest, Melanie Perkins, and Mike Cannon-Brookes. Their wealth originates primarily from the successful businesses they built in areas such as property, mining, or technology. Share market investments weren’t the sole source of their fortunes. However, they do diversify their wealth beyond their main business operations.
Warren Buffett, the world-renowned investor, supports this approach. He’s famously stated his preference for his wealth to be invested in index funds (which many ETFs track) after his passing. It’s a testament to the effectiveness of ETFs in wealth preservation. Former Australian prime minister, Malcolm Turnbull, is another high-profile figure who has invested significantly in low-cost ETFs.
So, why invest in ETFs? They’re a practical and efficient means for preserving wealth, especially if you’re already financially well-off. But if your aim is to make an extraordinary fortune, relying solely on ETFs might not be enough.
Now, if your idea of being ‘rich’ is more modest, say, between one to five million dollars, can ETFs help you achieve this? Absolutely. ETFs can be one of the most effective strategies to reach this financial goal. The reason behind this is compound growth, which is simply the process of your investments earning returns and then those returns earning even more over time.
“ETFs can be one of the most effective strategies to reach your financial goals
Here’s a scenario: let’s say you start with an initial sum of $10,000 and contribute an additional $1,000 each month from your earnings. Based on average market returns over time, you could potentially accumulate a million dollars in approximately 25 years. If you’re able to increase your contributions each month, you could reach your financial goal even sooner.
In conclusion, while ETFs may not make you extraordinarily rich in the traditional sense, they’re an effective tool in wealth preservation strategies for those who are already wealthy. Moreover, for those aiming to amass between one to five million dollars, ETFs can be an excellent approach.
Therefore, the answers to the questions, “Can ETFs make you rich?” and “Why invest in ETFs?” are closely tied to your personal financial goals.