Boost Your Investments This Year with the S&P 500 ETF
The end of the year is a great opportunity to reassess your investments and even enhance your portfolio by adding more stocks or funds.
Exchange-traded funds (ETFs) provide a straightforward way to invest in numerous stocks simultaneously, making them an excellent choice for those who may lack the time or inclination to research individual stocks extensively.
With a wide variety of ETFs available, each offering specific advantages, selecting the right one can be challenging. However, there’s one ETF endorsed by Warren Buffett that I plan to increase my holdings in before year-end.
Image source: The Motley Fool.
An Investment Shield for Your Portfolio
Warren Buffett frequently recommends investing in the S&P 500 ETF, which reflects all the companies in the S&P 500 (SNPINDEX: ^GSPC). This index encompasses 500 of the largest and most robust companies in the United States.
By purchasing just one share of an S&P 500 ETF, investors gain exposure to a multitude of stocks across various sectors. This offers immediate diversification and lessens risk without the hassle of buying many stocks individually.
All the companies in the S&P 500 ETF are well-established businesses, including Apple, Amazon, Nvidia, Procter & Gamble, 3M, and Coca-Cola. If you’re aiming to tap into leading firms from various industries, an S&P 500 ETF is a solid option.
Buffett’s Endorsement
Through Berkshire Hathaway, Buffett owns two prominent funds: the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).
A few years back, Buffett made headlines by betting $1 million that an S&P 500 fund would outperform a group of five actively-managed hedge funds over ten years.
The outcome? The S&P 500 fund achieved nearly 126% in total returns, while the hedge funds only delivered returns between 2.8% and 87.7%. Together, those hedge funds averaged around 36% over the decade.
In his letter to Berkshire Hathaway shareholders following the bet, Buffett remarked:
“There was nothing aberrational about stock market behavior over the 10-year stretch. Seizing the opportunities then offered does not require great intelligence, a degree in economics, or a familiarity with Wall Street jargon. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals.”
Building Wealth Over Time
While the S&P 500 ETF is generally considered a safe investment, it still has the potential to yield significant returns with patience and consistency.
Historically, the S&P 500 has generated an average annual return of about 7%. It’s important to maintain a long-term perspective since returns can fluctuate widely each year. However, over several decades, these variations typically average out.
If you were to invest $200 each month in an S&P 500 ETF with a 7% average return, your savings could grow substantially over the years:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $98,000 |
| 25 | $152,000 |
| 30 | $227,000 |
| 35 | $332,000 |
| 40 | $479,000 |
Data source: Author’s calculations via investor.gov.
The earlier you start investing, the more your money can grow. No matter your contribution capacity, beginning sooner can lead to increased overall returns.
Time and consistency are essential. The S&P 500 ETF is a smart option for those seeking a safer, dependable investment, and starting early can significantly boost potential earnings. By leveraging this Buffett-approved ETF, you could realize more wealth over time than you may expect.
Should You Invest $1,000 in the Vanguard S&P 500 ETF Now?
Before buying shares in the Vanguard S&P 500 ETF, consider this:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends 3M, Amazon, Apple, Berkshire Hathaway, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
