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The 1 ETF I Recommend Buying in 2022

By Maurie Backman – Dec 28, 2021 at 6:18AM

Key Points

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This single investment offers instant diversification and so much more.

No matter what your investment portfolio looks like going into 2022, adding to it is a move that could serve you well financially. And when it comes loading up on investments, you have choices. You could hand-pick individual stocks. Or, you could fall back on ETFs.

ETFs, or exchange-traded funds, allow you to own a bunch of different stocks with a single investment. And they're a great way to attain a solid level of diversification in your portfolio.

There are many types of ETF you can choose to invest your money in. But I recommend an ETF that tracks the broad market -- the Vanguard S&P 500 ETF (VOO 1.31%).

A smiling person at a laptop.

Image source: Getty Images.

Why it pays to invest in the S&P 500

If you're not familiar with the S&P 500, it's an index that consists of the 500 largest publicly traded companies. When analysts talk about how the stock market is performing, often, they base those discussions around how the S&P 500 is doing.

The Vanguard S&P 500 ETF has one goal -- to match the performance of the S&P 500 itself. And so if you buy that ETF and the S&P 500 has a strong year, so will you.

Now to be clear, the S&P 500 won't always perform well. Throughout its history, it's experienced its share of highs and lows. But on a whole, the index has done well and rewarded investors who have stuck with it for decades. And if you decide to buy shares of the Vanguard S&P 500 ETF, you should do the same -- plan to hold onto them for a very long time.

Since its inception in 2010, the Vanguard S&P 500 ETF has delivered an average annual return of nearly 16%. That's in line with the S&P 500's average return during that same time frame.

Now, let's assume you have $5,000 available to invest with next year. If you put that money into the Vanguard S&P 500 ETF, do nothing, and leave it alone for 30 years, you'll wind up with just over $429,000.

But let's be a little less optimistic and assume that over the next 30 years, the S&P 500 only manages to deliver an average annual 8% return, which is actually more in line with its historical average (as opposed to its average return since 2010). In that case, though, you'll still be looking at growing $5,000 into more than $50,000 over 30 years by sitting back and doing nothing. And that's not too shabby.

Is there a downside to buying an S&P 500 ETF?

Funds like the Vanguard S&P 500 ETF won't help you if your goal is to have your portfolio outperform the broad market. If that's your objective, then you may need to hand-pick a bunch of stocks that have strong growth potential.

But if you're looking for a simple, stress-free way to invest your money in 2022, then it pays to consider the Vanguard S&P 500 ETF or another ETF like it. Doing so won't make you rich overnight, and you may not even see such substantial growth in your portfolio in the course of a year. But if you hold onto those shares for decades, there's a good chance you'll end up very happy with the sum you end up with.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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