The "Magnificent Seven" isn't just a well-known Western from the 1960s. Today, it refers to seven stocks that have powered indexes higher over the past year or so. Each of these players is a technology giant, a leader in its specialty area, and offers fantastic growth prospects. These innovators are: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
You could benefit from the Magnificent Seven by investing directly in their shares, but you might wonder which one to choose. And you may not want to go all in on this investing theme and buy shares of all of the Magnificent Seven companies. But there is another way to gain exposure to this exciting basket of stocks, and at the same time, you could turn $100 per month into $325,000 over time. Sounds like a good deal? Let's find out how to do it.
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The new bull market
The Magnificent Seven stocks have driven gains in the S&P 500, pushing the index into a bull market because they are heavily weighted in the index. All but one make up the top 10 stocks in the benchmark -- electric vehicle giant Tesla recently dropped into the top 20.
So, if you bet on the S&P 500's performance, you're actually placing a bet on these industry leaders since they make up such a significant part of the index. And the best way to do this is through buying an index fund such as the SPDR S&P 500 ETF Trust (SPY +0.78%).
These funds reflect the structure of the S&P 500, holding the same stocks at the same percentages. So, if the S&P 500 index climbs 5%, for example, the index fund will follow. This offers you a great opportunity to get in on the most dynamic companies in today's economy without having to individually pick stocks and worry about the ups and downs of one particular player.
And speaking of ups and downs, an index fund's diversification across stocks and industries means that when one suffers, the others may compensate -- and this limits your losses.
Finally, a look at history shows us the S&P 500 always wins over the long haul. After every bear market, the index has gone on to recover and gain, so this suggests that if you hold on to an index fund for the long term, you're likely to grow your investment.
How to maximize your gains
Now let's talk about how to maximize your gains. You could go out and invest in an index fund in one go and then sit back, forget about it, and let the investment grow -- and that's fine. But you may supercharge your investment by investing monthly over the long haul and benefit from the magic of compounding, or the idea that gains produce further gains.
Let's look at an example, considering the S&P 500 will over time deliver an average annual increase of about 10% as it's done in the past. If you invest $100 monthly in the SPDR S&P 500 ETF, your investment could reach more than $325,000 over 35 years. You will have contributed $42,000, and you'll collect more than $280,000 in returns.
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Key Data Points
You could invest more or less according to your budget and adjust the holding time to suit your investment horizon -- but a period of at least 20 years will greatly amplify your results.
And this strategy offers you one more positive point. It consistently will offer you exposure to the companies powering the economy. Today, these top players are the Magnificent Seven, but if that changes at some point down the road, the index's composition will reflect that -- and the index fund will follow.
So right now and over time, by investing in an S&P 500 index fund regularly, you may benefit from the stock market's leading players and steadily progress along the path to financial freedom.
