No matter what your investment portfolio looks like going into 2022, adding to it is a move that could serve you well financially. And when it comes loading up on investments, you have choices. You could hand-pick individual stocks. Or, you could fall back on ETFs.
ETFs, or exchange-traded funds, allow you to own a bunch of different stocks with a single investment. And they’re a great way to attain a solid level of diversification in your portfolio.
There are many types of ETF you can choose to invest your money in. But I recommend an ETF that tracks the broad market — the Vanguard S&P 500 ETF (NYSEMKT: VOO).
Why it pays to invest in the S&P 500
If you’re not familiar with the S&P 500, it’s an index that consists of the 500 largest publicly traded companies. When analysts talk about how the stock market is performing, often, they base those discussions around how the S&P 500 is doing.
The Vanguard S&P 500 ETF has one goal — to match the performance of the S&P 500 itself. And so if you buy that ETF and the S&P 500 has a strong year, so will you.
Now to be clear, the S&P 500 won’t always perform well. Throughout its history, it’s experienced its share of highs and lows. But on a whole, the index has done well and rewarded investors who have stuck with it for decades. And if you decide to buy shares of the Vanguard S&P 500 ETF, you should do the same — plan to hold onto them for a very long time.
Since its inception in 2010, the Vanguard S&P 500 ETF has delivered an average annual return of nearly 16%. That’s in line with the S&P 500’s average return during that same time frame.
Now, let’s assume you have $5,000 available to invest with next year. If you put that money into the Vanguard S&P 500 ETF, do nothing, and leave it alone for 30 years, you’ll wind up with just over $429,000.
But let’s be a little less optimistic and assume that over the next 30 years, the S&P 500 only manages to deliver an average annual 8% return, which is actually more in line with its historical average (as opposed to its average return since 2010). In that case, though, you’ll still be looking at growing $5,000 into more than $50,000 over 30 years by sitting back and doing nothing. And that’s not too shabby.
Is there a downside to buying an S&P 500 ETF?
Funds like the Vanguard S&P 500 ETF won’t help you if your goal is to have your portfolio outperform the broad market. If that’s your objective, then you may need to hand-pick a bunch of stocks that have strong growth potential.
But if you’re looking for a simple, stress-free way to invest your money in 2022, then it pays to consider the Vanguard S&P 500 ETF or another ETF like it. Doing so won’t make you rich overnight, and you may not even see such substantial growth in your portfolio in the course of a year. But if you hold onto those shares for decades, there’s a good chance you’ll end up very happy with the sum you end up with.
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