The S&P 500 is a broad index that tracks the share performance of 500 large and profitable American businesses. It is often used as a bellwether to gauge how the market is doing.
A key way to gain exposure to this benchmark for your own portfolio is to buy an index fund. There are many choices of exchange-traded funds (ETFs), but I believe the Vanguard S&P 500 ETF (VFIAX -0.38%) is a no-brainer S&P 500 index fund to buy right now. And given that its share price is around $560, it’s a good option for those with less than $1,000 to invest.
Know what you own
Since the Vanguard S&P 500 ETF tracks the performance of the broader S&P 500, it has positions in all of these companies, ranging from dominant tech titans like Apple and Nvidia all the way to smaller and lesser-known enterprises like Amentum Holdings, a specialist in advanced engineering and technology, and Qorvo, which provides equipment to manage power consumption.
Simply buying this popular index fund is an easy way to gain exposure to the growth of the U.S. economy, which has historically been a good bet to make. The other benefits are that it requires zero skill in financial analysis or stock selection. Moreover, it can save you loads of time because it’s such a low-maintenance way to invest.
Investors can sleep well at night knowing that their hard-earned savings are invested alongside that of many others — the Vanguard S&P 500 ETF has $1.4 trillion in total assets under management. And the company, which has been around since 1975, is very highly regarded in the financial services industry.
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Performance and fees
Now that you have an overview of the Vanguard S&P 500 ETF, I’m sure you’re wondering how it has performed. Since its inception in November 2000, the fund has generated an average yearly return of 8.4%. Performance has been even better in the past 10 years at a 13.8% compound annual rate, driven by low interest rates and solid economic growth.
That kind of gain over many years can lead to tremendous results. Assuming the index reverts to its long-term average 8.4% annual return, a $1,000 investment made today would be 11 times higher 30 years from now. This is a great outcome for a totally passive investment strategy.
Some investors might believe that an 8.4% average gain isn’t that impressive. But consider the fact that the vast majority of active fund managers actually lose out to the S&P 500 over an extended period. Not only that, but their fees are also high, something that eats into returns.
The Vanguard 500 ETF isn’t costly at all, with an expense ratio of 0.04%. So on a $1,000 investment, you would pay a tiny $0.40 in fees every year. This makes this investment vehicle even more compelling, since you keep more of your money over time.
Don’t try to time the market
The Vanguard S&P 500 ETF currently trades in record territory. Credit goes to fantastic performance last year and so far in 2024. The prospects of accommodative monetary policy and a strong economy are also helping improve investment sentiment.
You might be asking if now is still a good time to put money to work, especially since there’s so much bullish fever going around. Doesn’t it make sense to wait for a correction before investing? This follows the theory of buying low and selling high.
On the surface, that sounds like a smart idea; you’re aiming to avoid the worst days in the market and capture the best days. However, it’s almost impossible to do this accurately on a consistent basis. And you can end up causing more harm for your portfolio than good.
If you’re worried about valuations today, then perhaps consider a dollar-cost averaging approach. Instead of investing $1,000 all at once, you could allocate $100 each month, taking advantage of multiple price points. Over time, your portfolio will thank you.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool recommends Qorvo. The Motley Fool has a disclosure policy.