There are plenty of good exchange-traded funds (ETFs) costing less than $1,000 that will likely end up being good long-term investments. And investors these days have their pick of funds that focus on everything from the technology sector to growth stocks and energy.
But what if you want to own a little bit of nearly everything in the border market? To do that, you'd want to choose an S&P 500 index fund. These funds track the movement of the market, allowing you to benefit when stocks are doing well, no matter what segment is growing.
To find the best S&P 500 index fund, look no further than the Vanguard S&P 500 ETF (VOO 1.48%), which provides all the diversification you'd ever want, for a very low maintenance fee. Here's why it's a no-brainer buy.
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A long track record of success
Since 1957, the S&P 500 has had a historical average rate of return of about 10.5%. Sometimes it's much less, and at other times, it's much more. But over the decades, the index has averaged out annual returns of around 10%, before inflation.
There's no guarantee you'll earn that much if you own Vanguard's S&P 500 ETF, but with decades of success, it's a good indicator that owning an S&P 500 is a smart long-term investment with significant potential upside.
That's why many investors, myself included, have the majority of their portfolio in an S&P 500 index fund. I've owned shares of the Vanguard S&P 500 ETF for years and plan to keep it as one of my largest holdings for many more years to come.
You don't have to think about diversification
Because this Vanguard fund tracks the S&P 500, you'll have exposure to 500 of the largest publicly traded companies in the U.S., allowing you to benefit from emerging trends, entrenched leaders, and growth companies across technology, industrials, healthcare, energy, commercial goods, and other sectors.
This is appealing for many reasons, particularly because you don't have to find individual companies to invest in, research the details of how their business is run, constantly keep up with quarterly and annual reports, or try to jump on new trends.
Instead, you'll know that if the S&P 500 is doing well, then your investments will benefit too. If you're prone to making rash investment decisions, buying and holding an S&P 500 index fund can be a great antidote for emotional investing.
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Key Data Points
It won't cost you much
All index funds charge a management fee, which is called an expense ratio for ETFs. Most passively managed index fees are already inexpensive, but Vanguard's fees are among the lowest in the industry. Vanguard charges just 0.03% for its S&P 500 ETF, which means you'll pay just $0.30 for every $1,000 you have invested. That's a great deal, and it's far less than the average ETF expense ratio of 0.44%.
This low fee allows you to keep more of the money from your investment returns, making it easier to benefit when the market is doing well.
One word about volatility
All stocks go up and down and even an S&P 500 index fund is likely to experience some significant price swings from time to time. This volatility is normal and unavoidable. While the U.S. has now been in a bull market for a little more than three years, there could be some rough patches ahead if the job market slows down.
Layoffs reached a five-year high last year and more companies, including Meta, are reportedly looking to cut more jobs this year. If the economy ends up slowing down, the S&P 500 could slow with it.
But the thing to remember is that building your investment portfolio doesn't mean you only buy stocks when things are going well. Instead, buying the Vanguard S&P 500 ETF now and continually adding to it monthly (or as often as possible) is the best way to build wealth over time.
