You’ve likely come across the saying, “Nothing lasts forever.” This holds true for most facets of life. In the realm of investments, this statement comes pretty close to the truth, though not entirely so. Should there be an eternal option in investing, it would probably be an index fund. Given that individual companies face numerous uncertainties, index funds offer exposure to a diversified mix of these firms, reflecting the overall market’s performance.
One potential timeless
index fund
you can purchase and keep indefinitely is the concept
Vanguard S&P 500 ETF
(NYSEMKT: VOO)
. This exchange-traded fund (ETF) is my favorite index fund to gain exposure to the
S&P 500
index
, arguably the most extraordinary market index in the world.
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Here are five reasons the Vanguard S&P 500 ETF should permanently reside in your investment portfolio.
1. It’s an easy way to gain portfolio diversification
Spreading out investments is among the key aspects of responsible investing. Have you been advised against putting all your eggs in one basket?
The concept remains similar with an index fund. Despite doing extensive research, unforeseen issues may arise for businesses beyond anyone’s control. By diversifying your funds among multiple investments, you safeguard against significant losses from a single error or unfortunate turn of events impacting your overall portfolio.
The Vanguard S&P 500 ETF mirrors the performance of the S&P 500, which represents 500 leading U.S. corporations. Essentially, each share gives you ownership of small portions across these numerous firms. Investing in such an S&P 500 index fund is among the simplest methods for broadening your investment holdings.
2. It provides access to the S&P 500 index.
If there’s an index you want to follow, it’s the S&P 500. Since expanding to 500 companies in 1957, it has created staggering wealth for investors:
The approach is straightforward yet efficient. A panel chooses from leading U.S. firms that meet particular requirements.
The index is adjusted based on weight
market cap,
So, a business that prospers and expands significantly receives greater importance. By doing this, it basically favors successful shares. Should a corporation underperform, it might be removed from the list and substituted with another one.
It has functioned exceptionally well that
most professional investors underperform
The S&P 500 over an extended period.
3. It has minimal fees.
The great aspect of the Vanguard S&P 500 ETF is that owning it comes with minimal cost. Most exchange-traded funds have fees, but this one charges virtually nothing.
expense ratio
, a charge for managing the fund. The Vanguard S&P 500 ETF has an expense ratio of merely 0.03%. This implies you would pay $0.30 each year for every $1,000 invested.
The fund’s minimal fees stand out as a clever advantage. Fees tend to differ, however, one general rule is that the more hands-on management a fund has, the pricier the fees become. Although it usually holds true that you get what you pay for in many aspects of life, this isn’t necessarily so when it comes to investment funds. Exorbitant charges do not ensure superior performance (as most experts underperform compared to the S&P 500 index again).
Ironically, high fees can do more harm than good over time because they add up. Remember: The fees are based on your total amount invested, not your gains.
4. You can trust Vanguard
You can trust Vanguard with your investments as they have an extensive track record dating back to the 1970s. Currently, their total assets under management exceed $9 trillion. They hold the position of being the biggest mutual fund provider globally and rank second in terms of managing exchange-traded funds (ETFs) after another major competitor.
BlackRock
.
Importantly, those who invest in Vanguard funds own the company, not individual shareholders in the company itself. Since the same people who put their money into Vanguard’s funds own the company, it helps align interests and reduces the chances of conflict. The company’s size and structure should give investors the confidence to buy and hold.
5. It’s a compounding machine, making it great for all investment strategies
Finally, the S&P 500 provides a diversified mix of assets, making the Vanguard S&P 500 ETF suitable for nearly every investment portfolio. As you’ve observed, this index has shown remarkable growth throughout the years. Interested in dividends? It distributes one with a current yield of approximately 1.3%. Overall, the S&P 500 has traditionally provided substantial total returns.
around 8% annual returns
.
Should you put money into the S&P 500 and past patterns continue,
your money will double
Approximately every nine years, so $10,000 becomes $160,000 within 36 years, highlighting the significant effect of compound interest when it has sufficient time to operate effectively.
Regardless of whether you’re a beginner starting out or a retiree looking to extend your savings, the Vanguard S&P 500 ETF should have a place in your investment mix. It might well be the most lucrative option for long-term gains you can choose.
Is it advisable to put $1,000 into the Vanguard S&P 500 ETF at this moment?
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Justin Pope
has no holdings in any of the aforementioned stocks. However, The Motley Fool holds positions in and endorses the Vanguard S&P 500 ETF. Additionally, The Motley Fool has a
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