This popular investment product can work wonders for a new investor.
Investing is the best path most people have to build lasting wealth. And the stock market in particular is arguably the top tool to use. But investing might seem like an intimidating and daunting task only reserved for a select group.
That’s just not true. If you’re new to investing and have no experience, consider buying this exchange-traded fund (ETF). I think it’s the perfect choice for beginners who are just starting out.
A solid track record
The ETF that newbies should focus on is the Vanguard S&P 500 ETF (VOO 1.20%). It tracks the performance of the broader S&P 500, which is the most widely followed market benchmark. It consists of 500 of the largest businesses in the U.S. I like to view this ETF as an investment vehicle that gains from the ingenuity and growth of the overall American economy. That seems like a smart bet to make.
It’s hard to argue with the Vanguard S&P 500 ETF’s historical track record. Since this product was launched in 2010, it has produced a total annualized return of 14.3%. This means that had you invested just $10,000 back then, you’d have about $62,000 today. That’s not too bad for doing absolutely nothing.
What’s great about the Vanguard S&P 500 ETF is that you gain exposure to all sorts of companies. Some of the most dominant businesses, like Apple, Amazon, and Berkshire Hathaway, are toward the top of the list in terms of their position sizing. Then there are much smaller companies that are in the ETF as well.
The stock market is a unique arena because it’s where you’ll see average people beating the so-called pros. During a 20-year stretch, a jaw-dropping 95% of large-cap fund managers actually lost to the S&P 500. If someone simply bought the Vanguard S&P 500 ETF and waited two decades, they would’ve done better. That’s hard to argue with, especially for investors without any experience.
Other benefits
Besides the chance to achieve solid returns over the long term, investors should be aware of the other benefits they get by buying the Vanguard S&P 500 ETF.
One top factor that can’t be ignored is the cost. This ETF charges an expense ratio of just 0.03%. For every $10,000 you invest, you’d only be paying $3 in fees for the whole year. This is extremely compelling because it means you get to keep more of your money over time, which is important because high fees can eat away at returns.
Investors should also take comfort in knowing that their money is with a reputable firm. Vanguard has a long and successful history spanning five decades. The Vanguard S&P 500 ETF has total assets under management of $1.1 trillion, easily making it one of the world’s largest investment products. Investors can rest assured knowing that their hard-earned savings are in a good place.
Record highs
After the market tanked in 2022 due to the aggressive pace of rate hikes by the Federal Reserve, it has come roaring back. The Vanguard S&P 500 ETF is up 41% since the start of 2023 (as of June 3). It now sits at record highs.
If you’ve been on the sidelines, I’m sure you’re wondering if now is still a good time to put money to work. To be clear, it most certainly is. Investing is best when it’s viewed as a long-term game, with a time horizon that spans decades.
This means that 20 or 30 years from now, it won’t really matter what level stocks were trading at when you first invested. All that matters is that you got started. Remember, time in the market is much more important than timing the market.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.