The stock market has been tough to stomach this year, as it's experienced a roller coaster of ups and downs. Currently, the S&P 500 is down roughly 17% from its peak in early January, and it's been in and out of bear market territory over the last several months.
It's unclear exactly what's in store for the market. Even the experts can't say for certain what will happen in the coming weeks or months. However, there's an ETF that could keep your money safer while still helping to supercharge your savings: an S&P 500 ETF.
What is an S&P 500 ETF?
An S&P 500 ETF is a fund that aims to mirror the performance of the S&P 500 index. Each ETF includes stocks from 500 of the largest and strongest U.S. companies from a wide variety of industries.
There are a few reasons why an S&P 500 ETF can be a smart investment, particularly during a bear market:
- It contains some of the strongest stocks: Many of the stocks within the S&P 500 are household names, including Amazon, Apple, and Microsoft. While there are never any guarantees when investing, the stocks within the S&P 500 have the best chance of recovering from a market downturn.
- It provides instant diversification: Each S&P 500 ETF includes hundreds of stocks from multiple industries, and that can limit your risk. Even if a few stocks in the fund don't survive this period of volatility, it's unlikely to make a significant dent in your overall portfolio.
- The S&P 500 has a perfect track record: Since 1928, the S&P 500 index has survived 21 bear markets (not including the 2022 slump), as well as countless corrections. Despite all the turbulence, though, it's not only recovered from every single downturn, but it's also experienced positive average returns over time.
- It requires next to no effort: S&P 500 ETFs are passive investments, so you never need to worry about choosing stocks or deciding when to buy or sell. All you have to do is invest consistently and give your money time to grow.
The S&P 500 has a long history of volatility, and the current downturn may not be over just yet. If you invest now, your portfolio could take a hit in the short term. But over the long run, an S&P 500 ETF is almost guaranteed to rebound and go on to see positive average returns.
How much can you earn with an S&P 500 ETF?
Although S&P 500 ETFs are relatively safe investments, they can also help you earn a substantial amount of money over time.
Historically, the index itself has earned an average rate of return of around 10% per year. That doesn't necessarily mean you'll earn 10% returns each and every year, but the annual highs and lows will average out to around 10% per year over time.
Say, for example, you're investing $200 per month while earning a 10% average annual return. Here's approximately how much you could earn, depending on how many years you consistently invest:
| Number of Years | Total Savings |
|---|---|
| 10 | $38,000 |
| 20 | $137,000 |
| 30 | $395,000 |
| 40 | $1,062,000 |
Source: Calculations by author via Investor.gov.
Investing in an S&P 500 ETF won't make you rich overnight, but if you invest consistently for decades, you could potentially become a millionaire. While that's a long time to wait, remember that this is a passive investment.
An S&P 500 ETF requires very little effort on your part other than sending in your monthly contribution. If you set your investments on autopilot, you can earn hundreds of thousands of dollars or more while barely lifting a finger.
Where to get started
There are many different S&P 500 ETFs to choose from. Most will contain the same stocks and see similar returns, as they track the same index.
Two of the most popular S&P 500 ETFs are the Vanguard S&P 500 ETF (VOO 1.26%) and the iShares Core S&P 500 ETF (IVV 1.21%). Both of these funds are low cost, charging annual fees of 0.03% -- which is one of the lowest expense ratios among S&P 500 ETFs.
Each fund also has roughly $300 billion in assets under management, making them two of the largest S&P 500 ETFs out there. They're also run by two investing pioneers: Vanguard and BlackRock. These investment companies are some of the largest in the world, so you can rest easier knowing your money is more protected.
Regardless of where you invest, S&P 500 ETFs can be a fantastic option during periods of market volatility. While nobody knows where the market is headed in the near future, an S&P 500 ETF can help keep your investments safer while maximizing your earnings.
