No investment is perfect, but there are some that have proved time and time again to be consistently rewarding. Every investment doesn't have to be a home run, but each one should ideally play a role in your portfolio and get you closer to your financial goals. If you're looking to strengthen your portfolio, here are two investments you could thank yourself for later.
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1. An S&P 500 index fund
The S&P 500 tracks the 500 largest U.S. companies and is likely the most popular stock market index. This is for good reason: An investment in an S&P 500 index fund can help you achieve diversification, one of the pillars of a good investment portfolio.
Companies in the S&P 500 span industries such as technology, healthcare, utilities, consumer goods, and almost anything else you can imagine. You never want your portfolio's performance to rely on too few companies or industries, and investing in the S&P 500 is one way to avoid that.
Historically, the S&P 500 has managed to return an average of 10% annually in the long run. With enough time on your side, the S&P 500 alone has proved to be a means to millionaire status. If you contribute $500 monthly with a 10% annual return, you can accumulate $1 million in just over 30 years.
Before choosing a particular S&P index fund, be sure you're aware of the expense ratio it charges. Although such funds track the same index, some are more expensive than others, and there's no need to be paying more for essentially the same investment.
2. An international stock index fund
It's a big world outside of the U.S., and there are tens of thousands of public companies in it. You're doing yourself a disservice if you invest only in U.S. companies; there are plenty of other great companies around the world that you can benefit from investing in.
It can be a bit more tedious to research and invest in international companies because there are other factors to consider, like a country's politics and its economy. Luckily, investing in an international stock index fund can give you global exposure with the ease of a single investment.
International markets are categorized as either developed or emerging. Developed countries usually have better infrastructure and mature economies, and emerging countries aren't quite as advanced but are headed in that direction. There's a bit more stability with companies in developed countries, but companies in emerging countries often present a better chance for hypergrowth. When you're looking for an international stock fund to invest in, make sure it includes companies in both markets.
You should aim to have at least 15% to 20% of your portfolio in international companies.
It doesn't have to be complicated
Investing shouldn't be complicated. If you're looking to be a good investor, you don't need to spend hours each day reading through financial statements or listening to earnings calls. You can be a good investor and never do either of those.
A good portfolio also doesn't need to have 50 different individual companies. Investing in a few quality index funds ensures you're covering all your bases and putting yourself in a position to receive sizable returns.
