Stock prices are surging, and after a rough couple of years, many people are excited about investing again.
However, it's more important than ever to invest in the right places. Even shaky investments can thrive when the market is soaring, but they may have a harder time recovering from periods of volatility. With seemingly endless investment options, it can be daunting to decide where to buy.
If you're looking for a low-maintenance investment that can help you build wealth while barely lifting a finger, an exchange-traded fund (ETF) could be a smart fit. And there's one type of ETF in particular that's safer, more reliable, and could help you make a lot of money over time.
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Building wealth in the stock market
An ETF is a basket of securities bundled together into a single investment, which makes it easier to build an instantly diversified portfolio with little effort. Each ETF can contain hundreds of different stocks from a variety of industries, and by investing in just one share of an ETF, you'll own a stake in all of those stocks.
While there are countless ETFs to choose from, one of the most popular (and safest) is an S&P 500 ETF. This type of investment tracks the S&P 500 index, so it includes the same stocks as the index and aims to mirror its long-term performance.
The S&P 500 itself contains stocks from 500 of the largest and strongest companies in the U.S. across roughly a dozen different industries. These stocks range from tech giants like Microsoft and Amazon to century-old brands like Procter & Gamble and Coca-Cola.
Perhaps one of the biggest advantages of this type of investment is that it's incredibly low maintenance. All the stocks in the fund are chosen for you, so it requires much less research than buying individual stocks. Because it's a long-term investment, you also never need to worry about deciding when to buy or sell. Simply invest whatever you can afford, and let the ETF do the rest of the work for you.
A safe, reliable investment
Because the companies within the S&P 500 are among the strongest in the world, it's incredibly likely this type of ETF will rebound from future downturns. While no investment is immune to volatility, the S&P 500 has a decades-long track record of surviving even the worst crashes, recessions, and bear markets in history.
In fact, research suggests that no matter when you invest in an S&P 500 ETF, you're almost guaranteed to see positive total returns, as long as you keep a long-term outlook. Analysts at Crestmont Research examined the index's performance throughout history and found that every single 20-year period ended in positive total returns.
This means that if you had invested in an S&P 500 ETF at any point and held it for 20 years, you'd have made money -- even if the market was incredibly volatile in that time.
How much could you earn with an S&P 500 ETF?
Nobody can say how the market will perform over the coming weeks or months, and there will certainly be another downturn at some point. But if you hold your investment for decades, you could potentially make a lot of money.
The stock market itself has earned an average rate of return of around 10% per year historically. While it's highly unlikely you'll earn 10% returns every single year, the annual highs and lows should average out to roughly 10% per year over decades.
Say you're able to invest $200 per month in an S&P 500 ETF, and you're earning a 10% average annual return. Here's approximately how much you could accumulate over time:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $137,000 |
| 25 | $236,000 |
| 30 | $395,000 |
| 35 | $650,000 |
| 40 | $1,062,000 |
Data source: Author's calculations via investor.gov.
Time and consistency are key to generating wealth in the stock market. Even if you can't afford to invest much right now, getting started could help you earn more than you might think over time.
Getting started with the right ETF
If you're ready to dive into investing in an S&P 500 ETF, you have plenty of options. Most funds will be similar, as they track the same index and include the same stocks. But three of the most popular options include the Vanguard S&P 500 ETF (VOO +1.25%), the iShares Core S&P 500 ETF (IVV +1.22%), and the SPDR S&P 500 ETF Trust (SPY +1.22%).
NYSEMKT: VOO
Key Data Points
All three of these funds have relatively low expense ratios, at 0.03%, 0.03%, and 0.0945%, respectively. This means that for every $10,000 in your account, you'll pay $3 to $9.45 per year in fees. These expense ratios are far lower than many other ETFs, which could save you thousands of dollars over time.
An S&P 500 ETF can be a fantastic investment for building long-term wealth with little effort on your part. By getting started now and investing consistently, you could earn more than you might think.
