In a market teeming with opportunities and pitfalls, choosing where to invest demands caution and wisdom. While many stocks shine during boom times, few withstand turbulent waters. The discerning investor knows that resilience lies in sound companies that weather storms and grow steadily. Making the right investment choices not only boosts earnings but also shields against unnecessary risks.
Enter the exchange-traded fund (ETF), a bouquet of securities conveniently bundled into a single investment. Opting for an ETF ensures diversification, spreading your risks across myriad stocks. Among the plethora of ETFs available, a select few stand out, earning accolades even from investing maestro Warren Buffett.
Securing Your Investment Safely
If safety is paramount, few ETFs rival the renowned S&P 500 ETF. Tied to the S&P 500 index, this investment mirrors the index’s stock selection and overall performance. The S&P 500 harbors the crème de la crème of global stocks, from tech giants like Apple and Amazon to stalwarts like Coca-Cola and 3M. Investing in an S&P 500 ETF instantly grants ownership in all 500 companies within the index.
The index’s resilience shines through historic adversities, weathering crises from the dot-com bubble to the Great Recession and the recent COVID-19 crash. Despite facing such tempests, the S&P 500 has ascended nearly 250% since 2000, a testament to its enduring strength.
Warren Buffett, the oracle of Omaha, extols the virtues of this investment for its risk-mitigating prowess. Through Berkshire Hathaway, he holds two S&P 500 ETFs – the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
In a legendary 2008 wager, Buffett staked $1 million on the S&P 500 outperforming a group of hedge funds. His bet paid off handsomely, with the index yielding returns of almost 126% over a decade compared to the paltry 36% from the hedge funds.
While no investment is foolproof, the S&P 500 ETF stands close to perfection. Its long track record of positive total returns, coupled with a diversified portfolio of hundreds of stocks, offers a low-effort path to wealth accumulation.
Earning Potential with an S&P 500 ETF
Historically, the market has yielded an average annual return of about 10%. Investing $100 per month in an S&P 500 ETF with a similar rate of return could yield:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $69,000 |
| 25 | $118,000 |
| 30 | $197,000 |
| 35 | $325,000 |
| 40 | $531,000 |
Data source: Author’s calculations via investor.gov.
Initiating your investment journey early augments your potential returns. Despite modest contributions, giving your money ample time to grow translates to substantial wealth creation.
One caveat of the S&P 500 ETF is its inability to surpass market returns. Designed to shadow market performance, it exemplifies the market rather than outperforms it. For those seeking above-market returns, delving into individual stocks might prove more rewarding.
Yet, for investors eyeing safety, reliability, and minimal effort, the S&P 500 ETF emerges as a stellar choice. Kick-start your investment expedition promptly and witness your wealth burgeon over time.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, and a member of The Motley Fool’s board of directors. Katie Brockman holds positions in Vanguard S&P 500 ETF. The Motley Fool has stakes in and recommends Amazon, Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool advocates for 3M. The Motley Fool maintains a disclosure policy.
The expressions and perspectives herein belong to the author and may not mirror those of Nasdaq, Inc.
