New to investing? Start here.
Picture this: You awake one morning to find $1,000 on your kitchen table. After thinking it over, you decide that investing the money is the right thing to do. But how? There are seemingly countless investment options to choose from, and you don’t have the time to research them all.
In my opinion, there’s an easy solution for any investor who wants to get started but also wants to keep things simple. Let me explain what that is.
Image source: Getty Images.
Investing the easy way
It’s true: Investing is a great way to build wealth. Yet, “investing in the stock market” can mean many different things. For example, it could mean:
- Owning only one individual stock, like the company someone works for
- Owning a few high-profile stocks, like Apple, Tesla, and Nvidia
- Having a well-balanced portfolio of 25 or more stocks — like The Motley Fool recommends
- Or, finally, it could mean owning one or more exchange-traded funds (ETFs)
My recommendation for any investor who wants to keep investing simple is to start with ETFs. Here’s why.
ETFs are products that trade like stocks but operate like mutual funds. Their administrators build a basket of stocks, and when investors purchase shares of the ETFs, they gain exposure to many stocks at one time, and for a fraction of what it would cost — in both time and money — to assemble the full portfolio themselves.
What’s more, many ETFs track well-established stock market indexes, like the S&P 500 or Dow Jones Industrial Average. These indexes are widely used benchmarks that are often quoted in financial and non-financial media alike. Moreover, they’re often used as a proxy of how the economy is performing.
Over the last century, the S&P 500 has delivered a roughly 10% return year over year. That means that $1,000 invested in the S&P 500 has grown to over $17,000 after 30 years.
The Vanguard S&P 500 ETF
One simple ETF that can help anyone get started in the investing world is the Vanguard S&P 500 ETF (VOO -0.52%).
VOO Total Return Level data by YCharts
This fund tracks the S&P 500, which is arguably the most widely cited stock market index in the world. Therefore, by investing in this fund, an investor is — as much as anyone truly can — “investing in the stock market.” The return generated by this fund will very closely track the returns generated by the S&P 500.
Granted, for many investors, simply matching the stock market’s return isn’t enough, and that’s where buying individual stocks or branching out into more complex ETFs may be of use. However, for the investor who wants to keep things simple, this fund is an excellent choice.
Even better, the fund charges one of the lowest expense ratios of any ETF around. An ETF expense ratio is the fee paid to fund administrators to cover the costs of operations. In the case of this fund, that fee is only 0.03%. In other words, an investor who buys $10,000 worth of shares only pays $3 a year in fees. For our hypothetical investor with only $1,000, that fee drops to a measly $0.30 annually.
Investing doesn’t have to be difficult. For those who want to keep it simple, ETFs — particularly index-tracking ETFs — are an excellent way to grow their wealth without diving into the deep end of the investing pool. That’s why the Vanguard S&P 500 ETF is a great choice for anyone looking to buy and hold an investment for a lifetime.
Jake Lerch has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Apple, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
