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This ETF Could Help Grow Any Retirement Account

By Maurie Backman – Nov 22, 2021 at 6:36AM

Key Points

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Here's why it pays to add it to your portfolio.

Whether you're saving for your senior years in an IRA, a 401(k) plan, or a combination of several plans, it's important to invest that money wisely. You'll need your investments to grow rapidly enough to outpace inflation and give you the buying power you need to keep up with your retirement expenses.

But what if you don't know a lot about investing? How are you supposed to set yourself up for long-term wealth when you don't even know how to choose one stock over another?

If that's the boat you're in, ETFs are a good bet. Short for exchange-traded funds, ETS allow you to buy a bucket of stocks with a single investment. And if you're really looking to take guesswork out of investing, it pays to buy ETFs that do a good job of tracking the broad market.

Two people at laptop.

Image source: Getty Images.

In that regard, S&P 500 ETFs are a great bet. These funds track the S&P 500 index itself, which consists of the 500 largest publicly traded companies. And there's one specific S&P 500 ETF that could be a really solid choice for your retirement savings.

Introducing the Vanguard S&P 500 ETF

The Vanguard S&P 500 ETF (VOO -1.10%) is only one of many ETFs you can invest in. But it's a good pick for a few reasons.

First, you get instant diversification. And that's a really good thing to have in a long-term investment portfolio. The more diverse your portfolio, the more you can benefit from general market upswings, and the more protected you'll be in the face of stock market crashes.

Secondly, the Vanguard S&P 500 ETF has a strong performance history. Since its inception in 2010, it's delivered around a 16% average yearly return. That's pretty much in line with the performance of the S&P 500 itself.

Furthermore, the Vanguard S&P 500 ETF has a very low expense ratio of 0.03%. That means your investment fees will be pretty negligible if you choose this particular ETF. And the lower those fees, the less they'll eat away at your retirement plan's returns.

Grow wealth without much effort

There's nothing wrong with hand-picking stocks for your retirement portfolio if you're up to the task. And in doing so, you may very well manage to beat the performance of the broad market.

But if you want to simplify the process of investing for retirement, ETFs are a great way to go. And among those, the Vanguard S&P 500 ETF is certainly one choice worth looking at.

In fact, let's say you've got $500 a month to invest with in your retirement plan, and you put all of that money into the Vanguard S&P 500 ETF. Even if we slash that 16% return in half, after 30 years, you'll still be looking at a retirement plan balance of about $680,000. And if we stick with that 16% return, that total climbs to over $3 million. That alone is reason enough to load up on the Vanguard S&P 500 ETF, or other ETFs like it.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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