The stock market is a wealth-building powerhouse, and investing consistently is one of the easiest and most effective ways to supercharge your net worth.
Whether you're a beginner investor or are simply looking for a no-fuss investment that requires minimal effort on your part, the S&P 500 ETF -- such as the Vanguard S&P 500 ETF (VOO +0.51%), iShares Core S&P 500 ETF (IVV +0.44%), or SPDR S&P 500 ETF Trust (SPY +0.44%) -- is one of the most popular options.
Endorsed by Warren Buffett, who once noted that an S&P 500-tracking fund is "the best thing" for most people, this ETF offers both stability and long-term earning potential. Here's how it could turn $200 per month into $1 million or more over time.
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A powerful fund with a long track record of success
In many ways, it's tough to go wrong with an S&P 500 ETF. This type of investment tracks the S&P 500 (^GSPC +0.65%), so owning a single share provides exposure to all 500 companies in the broad market index.
The companies within the S&P 500 are among the largest and strongest in the U.S., and many of them have decades of experience navigating tough economic times -- making this investment a particularly strong choice if a bear market or recession is looming.
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Key Data Points
History also suggests that over the long term, it's actually harder to lose money with an S&P 500 ETF than to make money.
Analysts at Crestmont Research studied the S&P 500's rolling 20-year total returns since 1919 and found that every period has ended with positive total returns. That means that by investing in an S&P 500 ETF at any point in history and holding it for 20 years, you'd have come out ahead.
Turning $200 per month into $1 million
While past performance can't predict future returns, the S&P 500 has earned an average annual return of around 10% over many decades. It's likely, then, that an S&P 500 ETF will earn somewhat similar returns over time.
If you were to invest $200 per month while earning a 10% average annual return, here's approximately how much you could accumulate in total:
| Number of Years Invested | Total Portfolio Value |
|---|---|
| 20 | $137,000 |
| 25 | $236,000 |
| 30 | $395,000 |
| 35 | $650,000 |
| 40 | $1,062,000 |
Data source: author's calculations via investor.gov.
Keep in mind, too, that while the S&P 500 ETF isn't necessarily the highest-earning investment, it is a passive fund. In fact, this ETF performs best when left alone for decades. Other than making consistent contributions, this fund requires next to no effort on your part.
One significant drawback to consider before buying
The S&P 500 ETF's relatively limited earning potential is perhaps its biggest drawback. Because it's designed to follow the broader market by tracking the S&P 500, it can't earn above-average returns.
This may not be a dealbreaker for everyone, as the lower returns may be a worthwhile trade-off for the stability and consistency the S&P 500 ETF offers. However, for those looking to maximize their earnings in the stock market, even slightly higher returns can go a long way.
Say, for instance, you're instead investing in a growth ETF that's earning a 12% average annual return -- just slightly above the S&P 500's historic average. At that rate, $200 per month could add up to around $1.8 million after 40 years.
While the S&P 500 ETF may not be the right fit for all investors, it can be a fantastic core holding for many. With decades of history recovering from recessions, bear markets, and crashes, it's one of the most reliable long-term investments out there.
