No Need to Reinvent the Wheel, This ETF Is All You Need

One thing I've noticed about investing is that it often looks and seems more complicated than it really is (some would argue that's by design). Investing isn't, and shouldn't be, hard. It doesn't take hours of research, reading The Wall Street Journal every day, faithfully watching CNBC, or anything of the sort. 

History has shown that a lucrative stock portfolio can be achieved with just an S&P 500 exchange-traded fund (ETF). There's no need to overcomplicate it.

The S&P 500 checks many boxes at once

The S&P 500 is an index that tracks the 500 largest public companies in the U.S. S&P 500 ETFs are put together by different financial institutions to mirror the S&P 500 and trade on the stock exchange like individual stocks.

Since they mirror the same index, the only tangible difference between S&P 500 ETFs is sometimes cost. That's why the Vanguard S&P 500 (VOO -1.17%) has been my go-to investment. At 0.03%, its expense ratio is one of the lowest you'll find from any ETF of any kind. For perspective, the SPDR S&P 500 ETF Trust (SPY -1.16%) is more than 3 times as expensive, with a 0.0945% expense ratio.

Aside from its low cost, the Vanguard S&P 500 ETF is a one-stop shop that checks many investing boxes at once.

To begin with, it provides investors with almost instant diversification. A fundamental principle of investing is that you shouldn't put all your eggs in one basket. You don't want your portfolio's success (or lack thereof) to rely on a few companies or sectors. So you should invest in a diverse array of companies.

The Vanguard S&P 500 ETF contains companies from all 11 major sectors, with the top five being information technology (26.1%), healthcare (14.2%), financials (12.9%), consumer discretionary (10.1%), and industrials (8.7%). Instead of researching individual companies and sectors, you can make a single investment that exposes you to it all.

Since the S&P 500 only contains large-cap stocks, it's not 100% diversified, but given the size and importance of the companies it contains, an investment in the S&P 500 is an investment in the broader U.S. economy, for all intents and purposes.

It's hard to argue against the historical results

Historically, the S&P 500 index has returned around 10% annually over the long run (the Vanguard S&P 500 ETF has returned 13.3% since its inception in September of 2010). Past performance doesn't guarantee future returns by any means, but to see how lucrative investing in the S&P 500 can potentially be, let's imagine this trend continues.

Here's how much $500 monthly investments would grow over different invested time periods, averaging 10% annual returns and accounting for the Vanguard S&P 500 ETF's 0.03% expense ratio.

Data source: Author calculations. Rounded to the nearest hundred.

Thanks to the compounding effect, consistent investments over the course of a career can pay off huge when it's retirement time. And if you invested in the ETF inside a Roth IRA, you wouldn't owe taxes on any of the capital gains; every bit of it would be yours in retirement.

Expect bumps along the way

The stock market has been relatively volatile since its creation, and it's a safe bet to assume it'll always be that way. The S&P 500 is no exception. Although it's produced great long-term returns, there have been plenty of bumps along the way. In fact, the S&P 500 has had negative years roughly a quarter of the time since its inception.

The one thing you don't want to do is let a bad week, month, or even year turn you away from investing in the S&P 500. Below are some noticeable recent drops in the Vanguard S&P 500 ETF and its approximate returns since then.

Data source: Google Finance. Drops and gains rounded to the nearest whole number.

Investors should trust that short-term drops are just bumps in the road and that the long-term potential remains worthy of their investment.