Investing in the stock market can be one of the best financial decisions you make as the long-term returns can be life-changing for individuals looking to achieve their retirement goals.
While getting started as an investor can feel like a daunting challenge, one of the most effective strategies is actually very simple. If you're a beginner looking to invest in stocks, consider starting with this exchange-traded fund (ETF).
Exposure to a broad swath of the market
Investors new to the markets should consider adding some of their savings to the Vanguard S&P 500 ETF (VOO 0.07%). Like a mutual fund, an ETF pools capital from many investors, then allocates that based on a specific strategy. The difference is that ETFs trade like stocks, adding more liquidity and convenience.
As the name suggests, the Vanguard S&P 500 ETF gives investors exposure to the S&P 500, which includes the 500 largest and most profitable U.S. companies. This includes dominant tech firms like Apple and Amazon and also less well-known businesses like Pool Corp. and Mohawk Industries. In essence, investors in the ETF are betting on the ongoing growth of the American economy. Historically, this has been a good strategy.
Investors can further gain peace of mind knowing their money is pooled with $372 billion of total assets under the management of the Vanguard S&P 500 ETF. It's one of the most popular ETFs on the market due to some key advantages. Besides a minimum investment of just $1, the low expense ratio of 0.03% means a $1,000 position would result in an annual fee of just $0.30. Therefore, investors get to keep more of their money, leading to better returns over the long term.
This ETF's track record is also worth mentioning as it provides a guide (but not a guarantee) as to what investors can expect in the future. In the last 10 years, the Vanguard S&P 500 ETF would've tripled your money assuming you re-invested your dividends.
Fees and returns are important, but beginner investors should also appreciate the other benefits of buying the Vanguard S&P 500 ETF. It requires no particular skill or time spent researching and analyzing individual stocks. And it's a low-maintenance option. That means there are fewer chances to make mistakes or deviate from your plan.
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Increasing your returns
While you might think investing in the Vanguard S&P 500 ETF with just an initial cash outlay is enough, there's a way that you can increase the gains of your portfolio: consistency.
Assuming you're able to steadily set aside money to invest, the best approach is to put money into this ETF on a regular schedule, a practice commonly referred to as dollar-cost averaging.
To illustrate how powerful investing as a habit can be, here's an example. Someone who only invested $10,000 once in the Vanguard S&P 500 ETF 10 years ago with no other contributions would be sitting on a balance of more than $26,300 today. That's certainly admirable, but if you invested an additional $100 each month over the same period, your total outlay of $22,000 would grow into a nest egg worth over $46,600.
This shows that consistency and time in the market are the most important factors for reaching your financial goals. Keep those things in mind as you start your investing journey, and let the Vanguard S&P 500 ETF be an easy first step.
