The stock market has been soaring lately, and now could be a fantastic buying opportunity. But it's more important than ever to choose the right investments.
Even shaky stocks can perform well when the market is thriving, but they may not be able to pull through periods of volatility. Strong stocks from healthy companies are the most likely to rebound from downturns and experience long-term growth, and investing in the right places can maximize your earnings while limiting risk.
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Everyone will have different investing goals, which will affect where you choose to buy. If protecting your savings is a priority, investing in an exchange-traded fund (ETF) could be a smart option. An ETF is a basket of securities bundled together into a single investment, meaning that when you buy just one share of an ETF, you're actually investing in dozens or hundreds of stocks at once.
There are many ETFs to choose from, but there's one in particular that's earned the Warren Buffett seal of approval. Not only can it keep your money safer, but it could also help you earn hundreds of thousands of dollars over time.
Protecting your investment portfolio
One of the safest and most reliable ETFs out there is the S&P 500 ETF. This type of investment tracks the S&P 500, meaning it includes the same stocks as the index itself and aims to replicate its performance.
The stocks within the S&P 500 are some of the strongest in the world, including household names ranging from Apple and Amazon to Coca-Cola and 3M. By investing in an S&P 500 ETF, you'll instantly own a stake in all 500 companies within the index.
Because only the best of the best stocks are included in the S&P 500, it's more likely this investment will recover from periods of volatility. In the last two decades alone, the market has faced some of the worst downturns in history -- from the dot-com bubble burst to the Great Recession to the COVID-19 crash and the most recent slump. Yet despite everything, the S&P 500 is still up by nearly 250% since 2000.
Warren Buffett has also recommended this type of investment to minimize risk while building wealth. In fact, through his holding company Berkshire Hathaway, he owns two S&P 500 ETFs himself -- the Vanguard S&P 500 ETF(NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust(NYSEMKT: SPY).
In 2008, he also famously bet $1 million that the S&P 500 could outperform a group of actively managed hedge funds. His investment earned total returns of nearly 126% over 10 years, while the five hedge funds averaged returns of just 36% in that time.
While there's no such thing as a guaranteed investment, the S&P 500 ETF is about as close as it gets. It has a decades-long history of earning positive total returns over time, and with hundreds of stocks in each ETF, you can achieve an instantly diversified portfolio with next to no effort.
How much can you earn with an S&P 500 ETF?
Again, there are no guarantees when it comes to the stock market. Historically, though, the market itself has earned an average rate of return of around 10% per year -- meaning the annual highs and lows have averaged out to roughly 10% per year over several decades.
Say you're investing just $100 per month in an S&P 500 ETF earning a 10% average annual rate of return. At that rate, here's approximately how much you could accumulate over time:
| 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.
The sooner you get started investing, the more you can potentially earn. Even if you don't have hundreds of dollars per month to contribute, the more time you give your money to grow, the easier it will be to generate a substantial amount of wealth.
One potential downside of the S&P 500 ETF, however, is that it can't earn above-average returns. Because it's designed to follow the performance of the market, it's impossible for it to beat the market. If that's an important goal for you, investing in individual stocks may be a better strategy.
S&P 500 ETFs can be a fantastic option for those looking for a safer, more reliable, and lower-effort investment. By getting started early and investing consistently, you could earn more than you might think over time.
Should you invest $1,000 in Vanguard S&P 500 ETF right now?
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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 Amazon, Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
