All investors want to find winning stocks to put money behind, similarly to the best professionals out there. Who doesn't want to allocate capital like billionaires Warren Buffett or Bill Ackman?
But for the majority of people, taking a more passive approach makes the most sense. This is easier than ever, thanks to the ample number of exchange-traded funds (ETFs). In fact, Vanguard, the massive asset management firm, has what I believe is a no-brainer option.
Here's one ETF to invest $1,000 in this July.
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Tracking the S&P 500
As the name suggests, the Vanguard S&P 500 ETF (VOO -0.08%) tracks the performance of the S&P 500 (^GSPC -0.01%). This benchmark, which is the most closely watched barometer of the stock market's performance, contains 500 large and profitable U.S. businesses. It's how many professional money managers assess their own performance over time.
By buying the Vanguard S&P 500 ETF, investors are betting on the continued ingenuity that has characterized the American economy. This has historically been a very lucrative perspective to have.
The Vanguard S&P 500 ETF gives investors immediate diversification, with exposure to all sectors of the economy. But unsurprisingly, there is a high weighting toward the biggest companies in the market. The top five positions in this ETF are Nvidia, Microsoft, Apple, Amazon, and Meta Platforms, which combined take up 27.2% of the asset base.
Impressive performance at a low cost
The Vanguard S&P 500 ETF's performance is hard to overlook. In the past decade, it has produced a total return of 254% (as of July 15). A $1,000 investment would've grown into $3,540 during that time. That's a wonderful result that shows the power of compounding.
These past gains have been propelled by some key factors. Interest rates have generally been low, which spurs economic activity, as well as helps to grow companies' earnings power. Passive investment vehicles continue to attract a lot of capital, bringing more demand into the stock market. And we've witnessed the rise of powerful tech enterprises that are arguably the best businesses the world has ever seen.
Investors also benefit by buying the Vanguard S&P 500 ETF because they don't need to spend time poring over financial statements or listening to earnings calls. It's cheap, with an expense ratio of just 0.03%, and a hassle-free method to start growing your savings.
Time in the market matters
The S&P 500 has had a choppy year. As of July 15, however, the index is trading in record territory. Investors were concerned about a possible recession amid ongoing trade uncertainty, but the market is now looking much more confident.
Many investors are probably wondering why July is a good month to add the Vanguard S&P 500 ETF to their portfolios. After all, wouldn't it be smarter to simply wait for a pullback before putting money to work? Buy low and sell high, as they say.
While timing the market seems like the right move, it's extremely difficult to execute successfully. Investors could cause more harm to their portfolios, trading in and out of positions at the wrong time and missing the market's best days.
The best thing to do is invest early and often. This is especially true for investors who have a time horizon that spans decades. Even buying at all-time highs won't matter that far into the future. Focus on having the discipline to invest $1,000 in the Vanguard S&P 500 ETF in July. And be ready for the volatility along the way, which is normal.
