It's been a difficult year for many investors as stock prices continue to slide. But that doesn't necessarily mean that it's a bad time to invest.
Many stocks are priced at a steep discount right now, making it an affordable time to buy. If you load up on high-quality investments now, you could see significant gains when the market eventually recovers.
Exchange-traded funds, or ETFs, can be fantastic options for many investors. And there's one, in particular, that could turn $200 per month into nearly one-quarter of a million dollars with next to no effort: The S&P 500 ETF.
What is an S&P 500 ETF?
An S&P 500 ETF aims to mirror the performance of the S&P 500 index itself. When you invest in an S&P 500 ETF, you'll own a stake in all 500 companies within the index, including behemoth corporations like Amazon, Apple, and Microsoft.
One of the biggest advantages of an S&P 500 ETF is that it's a low-maintenance type of investment. You never need to worry about choosing individual stocks or deciding when to buy or sell. Simply invest a little each month, and the fund will take care of the rest.
The S&P 500 itself also has an impeccable track record when it comes to market volatility. The index has experienced dozens of corrections, recessions, and bear markets over the decades, and it's managed to recover from all of them.
If you're concerned about the current market slump, an S&P 500 ETF can ease your worries. Although nearly all investments are subject to short-term volatility (and nobody can say for certain when the market will recover), this ETF is almost guaranteed to bounce back.
How much can you earn with an S&P 500 ETF?
While there are many different funds to choose from, one of the most popular is the Vanguard S&P 500 ETF (VOO -1.27%). This particular fund has one of the lowest expense ratios among ETFs, charging just 0.03% per year in fees.
Since its inception, this fund has earned a nearly 14% average annual rate of return. However, that number may be skewed high, simply because this ETF was established in 2010 and didn't experience the lows of the Great Recession.
A more realistic return may be closer to 10% per year, on average. This is roughly what the S&P 500 itself has experienced, historically.
If you were investing $200 per month while earning a 10% average annual return, here's approximately how much you could accumulate over time:
| Number of Years | Total Savings |
|---|---|
| 10 | $38,000 |
| 15 | $76,000 |
| 20 | $137,000 |
| 25 | $236,000 |
| 30 | $395,000 |
| 35 | $650,000 |
Data source: Author's calculations via Investor.gov.
To accumulate roughly one-quarter of a million dollars, you'll need to invest consistently for around 25 years. But if you have even longer to let your money grow, you could earn far more than that.
Of course, waiting decades isn't easy. But keep in mind that S&P 500 ETFs are passive investments and require next to no effort on your part. By simply investing as much as you can afford each month, you can build a portfolio worth hundreds of thousands of dollars or more over time.
There is one downside to consider, however: S&P 500 ETFs cannot beat the market. By definition, they only earn average returns. For many investors, that's a worthwhile trade-off for the overall ease of this investment. But if you're looking to earn above-average returns, you may consider investing in individual stocks instead.
S&P 500 ETFs, particularly the Vanguard S&P 500 ETF, have plenty of advantages. While they're not the best for everyone, if you're looking for a hands-off investment that can help you earn a lot of money over time, this ETF could be a smart addition to your portfolio.
