Could Buying a Simple S&P 500 Index Fund Today Set You Up for Life?

Could investing in a simple, low-fee S&P 500 index fund today set you up for life? You may not want to know the answer. You may prefer to hunt for exciting growth stocks instead. But I'm here to tell you that regularly plunking meaningful sums in an S&P 500 index fund can do wonders over long periods.

Even Warren Buffett has endorsed S&P 500 index funds, stipulating in his will that much of what he leaves his wife should go into one. Here's a look at why you might consider investing in an S&P 500 index fund, too.

Image source: Getty Images.

Meet the S&P 500 index

An S&P 500 index fund is an index fund that tracks the S&P 500 -- an index (a grouping) of 500 of the biggest companies in the U.S. The fund will hold roughly or exactly the same stocks in roughly the same proportion, aiming for roughly the same performance -- less fees. And there are some very low fees out there.

Here are the recent top 10 components in the index by weight:

Data source: Slickcharts.com, as of April 16, 2025.

It's worth noting that this index is a market-capitalization-weighted one, meaning that the biggest companies in it will move its needle the most. For example, you can see in the table above that Microsoft's weighting is about four times that of Tesla, so Microsoft's stock-price moves will make a much bigger difference in the index than will Tesla's. Of course, these are still the top 10 components. General Mills is also in the index, recently in 255th place, and with a weighting of just 0.07%. Toy company Hasbro, in 488th place, recently had a weighting of 0.02%.

Altogether, these 500 companies make up about 80% of the total value of the U.S. stock market. Thus, the S&P 500 is often used as a proxy for the market. It's mainly made up of giant, large, and medium-sized companies, though. If you want a more accurate proxy, you might opt for a broader index fund, such as the Vanguard Total Stock Market ETF (VTI 0.08%), which aims to include all U.S. stocks, including small and medium-sized ones, or the Vanguard Total World Stock ETF (VT 0.13%), encompassing just about all the stocks in the world.

Why invest in an S&P 500 index fund?

Here's a top-notch S&P 500 index fund to consider -- the Vanguard S&P 500 ETF (VOO 0.11%). Its expense ratio (annual fee) is a mere 0.03%, meaning that for every $1,000 you have invested in the fund, you'll pay an annual fee of... $3.

Why invest in such a fund? Well, because it can perform really well over time and it's way easier to just keep adding money to it than to spend time studying investing and scouring the stock market for the best investments. Instead of looking for a few needles in a haystack, buy the haystack!

Owning shares of an S&P 500 index fund means you'll quickly own (small) chunks of 500 of the biggest companies in America -- and as some companies grow and others shrink over time, the index will be adding and dropping components accordingly.

The table below shows how big a nest egg you might build over time in an S&P 500 index fund, if your money grows at 8%. For context, the S&P 500 has averaged annual gains of around 10% over many decades -- including dividends and not including the effect of inflation. So using 8% is a mite conservative.

Source: Calculations by author.

If that's not convincing enough, know that you probably can't do as well with some other, managed large-cap stock mutual fund. The S&P 500 index has actually outperformed most such funds, which tend to be run by highly trained financial professionals working hard to outperform the index. Over the past 15 years, for example, the S&P 500 bested 89.5% of all large-cap funds.

Whether you opt for a low-fee S&P 500 index fund or not, be sure to have a solid retirement plan, and to be saving and investing in order to have a comfortable financial future.