Your portfolio will inevitably change with time, but some investments should be a staple in your portfolio no matter what. There are no foolproof investments, but there are some that have stood the test of time and shown to be great long-term choices. As you're building out your portfolio, here are two unstoppable investments to include.
An S&P 500 index fund
I'm a firm believer that the S&P 500 -- which tracks the largest 500 public U.S. companies -- should be in every investor's portfolio. With the S&P 500, you're getting exposure to large-cap and blue chip stocks across all sectors. From technology to healthcare to energy, the representation is there. You always want to diversify your investments, and the S&P 500 offers instant diversification with one investment.
When deciding which specific S&P 500 index fund to invest in, one of the main things you need to consider is the expense ratio charged. The smallest differences in percentages may not seem like much on paper, but they can add up over time.
Take the Schwab S&P 500 Index Fund (NASDAQMUTFUND: SWPPX) and SPDR S&P 500 ETF (SPY +1.19%), which have expense ratios of 0.02% and 0.0945%, respectively. If you contributed $1,000 monthly to both funds for 25 years, receiving an average of 8% returns, here's the difference in account values:
| Index Fund | Expense Ratio | Amount Contributed | Account Total After 25 Years |
|---|---|---|---|
| Schwab S&P 500 | 0.02% | $300,000 | $874,700 |
| SPDR S&P 500 | 0.0945% | $300,000 | $865,200 |
Calculations by author. Assumes average annual 8% return.
By no means does historical performance guarantee future performance, but the S&P 500 has shown to be a stable long-term investment, returning roughly 10% annually in the long run. Even mutual funds put together by professional investors don't often outperform the S&P 500. In 2021, 79% of actively managed funds underperformed the index. An S&P 500 index fund doesn't have to be the bulk of it, but with its low fees, diversification, and long-term potential, it's a must in any portfolio.
An international index fund
Researching tons of individual companies to make investment decisions can already be challenging, but when it involves international companies and you have to consider other factors -- like local politics and economic stability -- it becomes something only people who get paid to do it for a living care to do. Instead, you should invest in an international index fund that gives you exposure to companies across the globe.
International stocks are a must in any well-rounded investment portfolio. If you only invest in U.S. companies, you're limiting yourself and missing out on great companies that can make for solid investments. Many international index funds contain thousands of companies, so the right one can ensure you get broad worldwide exposure. A fund like the Vanguard Total International Stock ETF (VXUS +1.12%), for example, contains over 7,800 companies in the following markets:
- Europe: 39.6%
- Pacific: 26.7%
- Emerging markets: 25.2%
- North America: 7.9%
- Middle East: 0.5%
- Other: 0.1%
NASDAQ: VXUS
Key Data Points
Not only do you get to instantly invest in household names like Toyota and Samsung, but you also get a chance to invest in emerging markets, which normally present more opportunities for hypergrowth. There are international index funds that focus on developed markets, and some on emerging markets, but you can find funds that cover both. Having around 20% of your portfolio in international stocks is a good baseline for most investors.
