Key Points
How do you turn $25,000 into $20,635,655? While investors are always looking for a shortcut, the answer is a combination of two factors: Time and my favorite index fund of all time.
This index fund is critical for building long-term wealth
If you put $25,000 into an index fund tracking the S&P 500 index (SNPINDEX: ^GSPC) in 1960, you would have north of $20 million today without ever investing another cent apart from reinvesting your dividends.
That’s it. This strategy involved no trading in and out of individual stocks. It doesn’t rely on market timing or predicting the next economic cycle. It doesn’t even require forecasting inflation rates, political parties, or geopolitical events. All that’s needed is time, and thus, plenty of patience.
Especially in today’s environment, investors are inundated withinvestment adviceand new investment vehicles. It sometimes seems like ETFs and mutual funds are tracking nearly every inclination. But as this simple example proves, none of those options have been necessary historically to amass long-term wealth.
In fact, many alternative investment vehicles come with high fees and elevated tax bills due to short-term trading. Index funds tracking the S&P 500, meanwhile, experience very little annual turnover. That is, these index funds only trade in and out of stocks when the underlying index changes, which isn’t very often.
Historical market cycles have also shown that the most important thing an investor can do isn’t picking the right stocks, but putting more money to work. Buying an ETF tracking the S&P 500 allows investors to do this with minimal thought, fees, and extra steps. The Vanguard S&P 500 ETF (NYSEMKT: VOO), for example, charges just 0.03% per year in fees — nearly as low as it gets. This ETF also allows for regular purchases as low as $1. Investors, therefore, can start automatically buying more stock for just $1 per day.
In a world where complex investment strategies are everywhere, simply sticking with a broad market index fund for decades at a time remains an elite approach to building wealth.
Should you buy stock in Vanguard S&P 500 ETF right now?
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $417,413!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,341,294!*
Now, it’s worth noting Stock Advisor’s total average return is 950% — a market-crushing outperformance compared to 212% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
