This past year has been a wild ride for the stock market. But one of the most incredible stories to come out of the investing world recently is the meteoric rise of GameStop (GME +0.44%).
In late January, GameStop's share price skyrocketed more than 1,800% in a matter of weeks, only to crash just days later. This was due to a short squeeze initiated by investors in the online community Reddit, and short-sellers lost billions of dollars because of it.
Image source: Getty Images.
Investing in so-called "meme stocks" -- or stocks that are hyped online -- can be a dangerous strategy. These stocks often experience wild price fluctuations, and a spike in stock price is often due to its online hype rather than its business fundamentals. This makes them incredibly risky investments, and even experienced investors can lose a lot of money.
GameStop is experiencing another surge in stock price, rising nearly 500% since Feb. 22. While it may be tempting to invest in this risky stock, there's a much better option out there.
Where to invest instead
Investing in GameStop (or any other meme stock) is a risky move that could cost you big time. A safer and more profitable option is to invest in S&P 500 index funds.
An S&P 500 index fund is an investment that contains all the stocks within the S&P 500 index. Many of these companies are household names, including Amazon, Apple, and Tesla.
S&P 500 index funds are one of the safest types of investments available, and they're almost guaranteed to see positive long-term returns. Despite short-term volatility, the S&P 500 has experienced an average 10% annual rate of return since its inception.
Although your investments may take a tumble during periods of market volatility, history has shown that the S&P 500 has always recovered from every downturn. This means that no matter what happens with the market, it's very likely your investments will grow over time.
How to build wealth with zero effort
One of the biggest advantages of investing in S&P 500 index funds is that you can get rich in the stock market with no effort on your part. S&P 500 index funds are a "set it and forget it" type of investment. In other words, the best thing you can do is invest your money and then leave it alone for as long as possible.
If you were to try to make money by investing in overhyped meme stocks, you'd need to figure out the perfect time to buy, decide how many shares you could afford, and sell at just the right moment before the price dropped. And even then, you'd still need a considerable amount of luck to pull this strategy off.
With S&P 500 index funds, you don't need to do anything. In fact, by taking a hands-off approach, you could stand to earn hundreds of thousands of dollars or more.
Say, for example, you began investing $300 per month in S&P 500 index funds earning a 10% annual rate of return. Here's approximately how much you'd have saved over time:
| Number of Years | Total Savings |
|---|---|
| 5 | $22,000 |
| 10 | $57,000 |
| 20 | $206,000 |
| 30 | $592,000 |
| 40 | $1,593,000 |
Source: Author's calculations.
Making a lot of money with S&P 500 index funds does take time. Again, though, you're almost guaranteed to see positive returns over time, and this type of investment requires zero effort.
If you're ready to get started, you have a few options. Some of the top S&P 500 index funds include:
- iShares Core S&P 500 ETF (IVV +0.61%)
- SPDR S&P 500 ETF Trust (SPY +0.59%)
- Vanguard S&P 500 ETF (VOO +0.54%)
Each of these funds tracks the S&P 500, and they're all powerhouses in the investing world. In addition, they all have low expense ratios -- which means you'll pay less in fees each year.
If you're looking for a relatively easy way to get rich in the stock market, you can't beat S&P 500 index funds. Instead of risking your savings on dangerous short-term investments, opt for index funds instead. Your future self will thank you.
