The stock market can be daunting at times, but investing is one of the simplest, most effective ways to build wealth that lasts a lifetime.
While there are countless ways to invest, some require more effort than others. Investing in individual stocks can be a smart way to customize your portfolio, for example, but it demands plenty of research and upkeep -- and it can be incredibly expensive to get started.
Exchange-traded funds (ETFs) can be a more approachable option, whether you're new to investing or simply want a low-maintenance option. An ETF is a basket of securities bundled together into a single investment, so with just one fund, you're investing in dozens or hundreds of stocks at once.
The right ETF for you will depend on your preferences and risk tolerance. But there's one tried-and-true Vanguard fund that's not only low risk, but it could also turn $300 per month into $592,000 or more with minimal effort on your part.
A powerhouse ETF that can build wealth without lifting a finger
If you're looking for an investment that has stood the test of time, carries less risk than many other ETFs, and can generate hundreds of thousands of dollars or more, an S&P 500 ETF can be a smart option.
The Vanguard S&P 500 ETF (VOO 0.07%) tracks the S&P 500 index itself, meaning it contains the same stocks as the index and aims to mirror its long-term performance. The S&P 500 includes stocks from 500 of the largest companies in the U.S., ranging from tech behemoths like Amazon and Apple to century-old brands like Coca-Cola and 3M.
S&P 500 ETFs are one of the safest ETFs out there, and there are several distinct advantages to this type of investment:
- Immediate diversification: Each S&P 500 ETF includes stocks from 500 companies across a wide variety of industries. By investing in just one ETF, you'll instantly have a well-diversified portfolio. This can substantially lower your risk, because if a few stocks or even an entire industry is struggling, it won't sink your entire investment.
- A long track record of success: The S&P 500 itself has a decades-long history of recovering from even the worst crashes, bear markets, and recessions. While past performance isn't indicative of future returns, there's a very good chance the index will also rebound from whatever the future may hold.
- Strong companies: The stocks within the S&P 500 come from some of the strongest companies in the world. Although there are no guarantees that they will continue experiencing long-term growth, these stocks are among the best of the best.
Perhaps one of the strongest advantages of this ETF, however, is its ease and simplicity. All the stocks are already chosen for you, and this fund performs best over time. This means you never need to research companies, keep up with industry trends, or decide when to buy or sell. Simply invest whatever you can afford, stay invested for the long haul, and the fund will take care of the rest.
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Key Data Points
The Vanguard S&P 500 ETF, specifically, is also a good choice for its low expense ratio of just 0.03% per year. Many other funds charge fees of 1% or more per year, so this ETF could potentially save you thousands of dollars over time.
Building a $592,000 portfolio
Nobody can say for certain how the S&P 500 will perform over the coming weeks or months. Historically, though, the market has earned an average rate of return of around 10% per year. While you likely won't earn 10% returns every single year, the annual highs and lows could average out to around 10% per year over decades.
Let's assume you're investing in the Vanguard S&P 500 ETF and earning a 10% average annual return on your investment. If you're investing $300 per month, here's approximately how much you could accumulate over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $206,000 |
| 25 | $354,000 |
| 30 | $592,000 |
| 35 | $976,000 |
| 40 | $1,593,000 |
Data source: Author's calculations via investor.gov.
To reach $592,000 in total savings, you'll need to invest consistently for around 30 years. But if you have more time to save (or if you can afford to invest more each month), you could potentially earn far more.
The Vanguard S&P 500 ETF can be a fantastic option for those looking to generate long-term wealth with a nearly effortless investment. By getting started early and giving your money as much time as possible to grow, you can build a portfolio worth several hundred thousand dollars or more.
