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The Award for Best Beginner Stock Goes To...

By Katie Brockman - Apr 25, 2021 at 9:15AM

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New to investing? This investment may be perfect for you.

Hollywood's biggest night, the Oscars, is here. As celebrities prepare to walk the red carpet, investors can prepare their stock portfolios to maximize their earning potential.

If you're a beginner investor, it can be daunting to get started. There are thousands of stocks to choose from, and seemingly unlimited mutual funds, exchange-traded funds (ETFs), and other types of investments.

Fortunately, it's easier than you may think to get started investing. And there's one type of investment that wins the award for "Best Beginner Stock."

Red theater seats

Image source: Getty Images.

The best investment to get started

If you're just beginning to invest in the stock market and want to avoid the headaches that come with choosing individual stocks, buying and selling investments, and doing loads of research, your best bet is to invest in an S&P 500 ETF.

An S&P 500 ETF is a collection of stocks that mirrors the S&P 500. In other words, it contains all the same stocks as that particular stock market index. The S&P 500 includes hundreds of the largest, strongest companies in the U.S., making it one of the safer investments available.

Another advantage of this type of investment is that it's more protected against market volatility. Market downturns are inevitable, and nobody can escape them. However, S&P 500 ETFs are more likely than some other types of investments to recover from even the worst market crashes.

In the last 20 years alone, the S&P 500 has endured a significant amount of volatility -- from the dot-com bubble burst to the Great Recession to the crash spurred by the COVID-19 pandemic. Yet despite all the turbulence, the S&P 500 has recovered stronger than ever.

^SPX Chart

^SPX data by YCharts

If you're a new investor, the idea of experiencing market crashes can be intimidating. But by investing in an S&P 500 ETF, you can rest easier knowing your money is more protected.

Making money with S&P 500 ETFs

Perhaps the biggest advantage of investing in an S&P 500 ETF is that you can make a lot of money with next to no effort.

S&P 500 ETFs require zero upkeep or maintenance, which makes them a smart option for beginners and those who don't want to spend a lot of time researching stocks or managing their portfolio.

With this type of investment, all you need to do is invest consistently, then sit back and let the fund do the rest of the work for you. Given enough time, you could potentially become a millionaire investor with S&P 500 ETFs.

Since the S&P 500's inception, it has earned an average rate of return of around 10% per year. Say you're investing $200 per month in an S&P 500 ETF while earning a 10% annual return. Here's approximately how much you'd have saved over time:

Number of Years Total Savings
5 $15,000
10 $38,000
20 $137,000
30 $395,000
40 $1,100,000

Source: Author's calculations

Patience is key to making a lot of money with S&P 500 ETFs, and the more time you have to invest, the more you can potentially earn.

Finding the right investments can be tricky, but investing in the stock market is one of the best ways to build wealth over time. By investing in S&P 500 ETFs, you can take home the award for  "Most Successful New Investor."

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