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Saving for retirement is only one step on the road to accumulating wealth. You’ll also need to invest your savings so that your money not only grows, but grows at a rapid enough clip to outpace inflation.
But when it comes to investing for retirement, the stakes are high, and so you can’t afford to go at it blindly. But what if you really don’t have the time or patience to spend your days researching stocks individually to determine whether they should have a place in your portfolio or not? If that’s your situation, you’re in good company. And you’re also not doomed, because there’s actually a fairly simple solution to your problem — S&P 500 index funds.
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What are S&P 500 index funds?
Index funds are passively managed funds that aim to mimic the performance of the different market indexes they’re attached to. The great thing about index funds is that they typically charge much lower fees than actively managed mutual funds, since you’re not paying the salaries of fund managers who will be hand-picking investments for you.
The S&P 500, meanwhile, is a market index that’s made up of the 500 largest public traded companies. The S&P 500 is generally considered to be a strong indicator of how the stock market is doing on a whole. And because it consists of 500 distinct companies, it lends to a nice level of diversification for a retirement portfolio.
Investing too heavily in any single market sector could mean facing steeper losses during periods of volatility and limiting your portfolio’s growth. The beauty of S&P 500 index funds is that you get to build a diverse portfolio — without having to put in much effort.
How much wealth might you grow with S&P 500 index funds?
Over the past three decades, the S&P 500 has delivered an average annual return of 10.7% per year. Of course, the index has been around longer than that, but if we rely on that number, it’s fair to assume that if you load up on S&P 500 index funds in your retirement plan, you’ll enjoy an average annual 8% return in your portfolio, since that’s accounting for a fair amount of volatility during your investment window.
Now, say you’re able to sock away $500 a month for retirement over a 30-year period, and that you sink your savings into S&P 500 index funds. At the end of that window, you stand to retire with about $680,000.
Of course, that assumes you only have 30 years left until retirement. If you’re looking at a 40-year savings window, you could grow your investments into a rather impressive $1.55 million, assuming that same monthly contribution and return.
Researching stocks doesn’t have to be complicated, but it can be a time-consuming process — one you may not have the stomach for. If that’s the case, you can still invest your long-term savings efficiently and generate a lot of wealth in your retirement plan by loading up on S&P 500 index funds. Not only might these funds deliver a solid return over time, but they’re also the type of investment that could help you sleep better at night. And there’s certainly a lot of value in that.
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