The S&P 500 index is a modern wonder of wealth-building prowess. The famous stock market index represents a collection of the top 500 companies that the United States economy has to offer.
Since 1950, the S&P 500 has turned every dollar into over $354. Yes, that's 354 times your money, and that doesn't even include dividends. Remarkably, people still try to outperform the S&P 500, yet even most professional investors fail to do it consistently.
Want to invest in the S&P 500 this month? I think this is the smartest way to do it. The following steps are very straightforward and cost virtually nothing beyond the money you invest.
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As easy as one, two, three
These steps assume you already have an account where you can buy stocks, whether that's a brokerage account or a retirement plan. It's not a problem if you don't have one. Once you've done the research and decided on the best account for you, it's off to the races.
Here is the most effective three-step method to invest in the S&P 500 in June, or any other month:
- Create a schedule for planned, routine investments. It could be a specific amount monthly, a percentage of each paycheck, or whatever you decide.
- Each time you invest, do so in an S&P 500 index fund, such as the Vanguard S&P 500 ETF (VOO 1.16%) or the SPDR S&P 500 ETF Trust.
- Repeat as you add new funds to your investment portfolio.
These two funds are great because they have low fees. For example, the Vanguard S&P 500 ETF has an expense ratio of only 0.03%. That's just $0.03 for each $100 you invest.
The idea is to make it feel somewhat automatic. You're not thinking about whether the market is up or down, or what the news headlines say. You're methodically investing slowly and steadily over time.
Now, I wish I could take credit for these ideas, but the reality is that I'm simply sharing sound, time-tested methods here.
Why is this plan the best way to go?
Historically, the S&P 500 index has generated positive investment returns in approximately 94% of its rolling 10-year periods, dating back to 1929. That's according to the analysis of multiple backtesting studies. In other words, investors haven't had to do much aside from hop on board and enjoy the ride.
Therefore, most people would benefit from keeping things as simple as possible. That means investing a little at a time on a routine basis, a strategy often referred to as dollar-cost averaging.
There's no need to try to overcomplicate things. Even if you had psychic powers and could invest all your money at the market's exact low point each year, studies have shown that you'll only marginally improve your returns over a multidecade time frame.
Trying to hoard your money for the perfect opportunity, anticipate the market's direction, or otherwise guess is more likely to hurt your returns because you're robbing yourself of valuable time for your money to grow.
Some essential tips before you depart
The S&P 500 has performed so well because it represents the most successful companies in what has been the world's strongest economy for decades.
Nobody can guarantee the S&P 500 will continue to perform as it has in the past, and it will turn in some occasional rough years. Still, you won't find a more proven wealth builder.
It's always wise to diversify your portfolio across different types of companies, industries, countries, and asset classes. That way, your portfolio is protected in the event the S&P 500 has one of those rare decades where things don't go well.
Lastly, strive for consistency and focus on the long term. It's tedious to watch your investments grow at first because the growth occurs exponentially. Like a snowball rolling downhill, it doesn't seem very impressive early on. But give it long enough, and it becomes a formidable force of nature.
If you get started and stick with a proven winner like the S&P 500, your portfolio should do the same thing.
