Nvidia stock has proven its ability to generate big gains over the long term, soaring more than 1,800% over the past five years. And the company's dominance in the artificial intelligence (AI) chip market -- with 80% share -- could continue to push the stock higher over time.
But investing in a high-growth stock like Nvidia comes with a certain amount of risk, and it's important for investors to carefully monitor company and industry news as well as earnings reports. So, Nvidia remains an investment opportunity, but it may not be the right one for everybody.
I've got some good news, though -- there are plenty of other ways to grow wealth, and one of them actually is lower risk and requires minimal effort. In fact, the only thing you have to do is set aside $50 per month, and over time, your investment could surpass $100,000. I'm talking about investing in an index fund. So, forget Nvidia, and let's find out more about this easy and potentially explosive strategy.
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An investment in the S&P 500
Which index fund should you buy? One that mimics the S&P 500, and a great example is the SPDR S&P 500 ETF Trust (SPY +0.77%). These funds buy shares of companies that are in the S&P 500 to replicate the composition of the index and therefore the performance.
So, for example, today Microsoft is the heaviest share in the S&P 500 and the heaviest in the SPDR S&P 500 ETF too. And if the S&P 500 climbs 5%, so will the index fund.
Here's why tying your performance to the S&P 500's performance is a good idea. The S&P 500 over time has averaged a 10% annual gain, meaning if you remain invested in an index fund tracking it, you could see your investment increase accordingly.
Of course, there's no guarantee the index will continue delivering the same gains as in the past, but its composition, favoring the industry leaders of the times, generally helps it post a positive long-term performance. So, there's reason to be optimistic.
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Key Data Points
And speaking of the index's composition, this is regularly reviewed in order to ensure it represents the companies powering the economy during a particular period. Just recently Super Micro Computer won a spot in the S&P 500. The company sells servers and workstations needed by businesses in the high-growth field of AI, and business has been booming. Supermicro's shares have followed, surging more than 4,000% in five years.
A combination of growth and safety
All this means an investment in the SPDR S&P 500 ETF offers you exposure to the most successful companies of the moment, as well as diversification across industries. This results in a combination of growth and safety -- the top movers and shakers should drive growth, and the inclusion of stocks from a variety of industries limits loss potential if one particular player or industry suffers.
Today, the three biggest sectors in the S&P 500 are information technology, financials, and healthcare, and eight other industries make up the rest of the index.
Now, let's consider how you could turn your $50 per month into a fortune. If you invest $50 every month in the SPDR S&P 500 ETF over a period of 35 years, you'll benefit from the magic of compounding, or the idea that gains produce further gains -- and the value of your investment could grow to more than $162,600.
This is considering an average 10% annual increase for the S&P 500. You would have contributed $21,000, and your returns would total more than $141,000. You could increase your monthly investment to score an even bigger win or decrease your contribution according to your budget and still benefit from this strategy.
As mentioned, it's impossible to predict future market moves with 100% accuracy, even if the index has performed a certain way over time. So, this calculation should just be used as an example -- exact returns will vary.
But the S&P 500 has been known to reward long-term investors, and this means it's likely you'll benefit by investing in the SPDR S&P 500 ETF over the long haul -- and possibly turn just $50 a month into a six-figure jackpot. So right now, investors looking for a steady long-term path to growth might want to forget Nvidia and instead regularly invest in this top S&P 500 index fund.
