Everyone would love to make a million dollars through investing -- and there are various ways to set yourself off on the right path. One way is to invest in a broad range of quality stocks and hold on to them for the long term. Though this is something all of us can do, it requires some time and effort.
Now, what if I told you that with just one investing move, you could invest in 500 of today's top stocks? This is one time when something that sounds too good to be true actually is true: By buying shares of an exchange-traded fund (ETF) that tracks the S&P 500 (^GSPC 1.33%), you gain exposure to the biggest companies driving today's economy.
A popular low-cost one to try is the Vanguard S&P 500 ETF (VOO 1.34%). But will this Vanguard ETF make you a millionaire? Let's find out.
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Immediate exposure to many stocks
First, let's talk a little bit about ETFs. These assets allow you to invest in many stocks at once according to a particular theme -- this could be by industry, such as biotech, or investment style, like value or growth. ETFs also are a great way to gain exposure to the performance of a major benchmark, such as the S&P 500. In this case, the fund mimics the composition of that index in order to track its performance, meaning that when the S&P 500 advanced 23% last year, so did the ETFs tracking it.
So, by investing in an ETF, you gain immediate diversification across a theme, or in the case of an S&P 500 ETF, diversification beyond one industry or theme.
And the great thing about ETFs is they trade daily on the market just like stocks, meaning you can buy or sell them just as you would a stock. The one main difference to be aware of is ETFs come with management fees, as expressed by an expense ratio -- you'll want to choose an ETF with an expense ratio of less than 1% in order to preserve your gains over time. The Vanguard S&P 500 ETF fits the bill, with an expense ratio of only 0.03%.
Investing in 11 different industries
Now, let's talk specifically about the Vanguard S&P 500 ETF. Today, this fund, like the index it tracks, is heavily exposed to technology -- an industry that's soared in recent times thanks to investor interest in areas like artificial intelligence (AI) and quantum computing.
Information technology is the most heavily weighted sector in the index and fund at more than 32%. But, as mentioned, investing in such an ETF allows you to diversify, and here, we have exposure to a total of 11 industries.
Another positive point is the index, and therefore the Vanguard fund too, are flexible. The index rebalances periodically to reflect the most relevant companies and sectors of the times, and the Vanguard fund must copy these additions and deletions.
All of this ensures that you as an investor always are exposed to the top companies of the moment. For example, last year, the S&P 500 invited Palantir Technologies, an AI-driven software company that's seen earnings soar, to join -- and the Vanguard ETF added the shares.
Could this investment be worth millions?
So, it's clear that an investment in the Vanguard S&P 500 ETF is a smart move -- but could it make you a millionaire? Let's do some quick math. The S&P 500 has generated an annual average return of 10% over time. If we imagine this continues and we invest $1,000 in the Vanguard ETF today, then add $300 a month to it for 35 years, the total value of our investment could top $1 million.
This shows it is possible to reach $1 million by investing in the Vanguard S&P 500 over time -- but should you do it? I wouldn't put all of my eggs in one basket and invest only in one stock or one ETF -- even an ETF that tracks a solid benchmark. You're much more likely to score a victory by buying a variety of quality stocks and ETFs and holding on over time than sticking to just one.
But, as part of a diversified portfolio, the Vanguard S&P 500 ETF makes a fantastic investment -- and one that clearly could help you roar ahead on the road to wealth.
