It has been a difficult year for many investors as stock prices continue to fall. But that doesn’t necessarily mean it’s not the right time to invest.
Many stocks are currently being sold at a deep discount, making this an affordable time to buy. If you stock up on high-quality investments now, you could see big gains when the market eventually recovers.
Exchange-traded funds, or ETFs, can be fantastic options for many investors. And there’s one, in particular, that could turn $200 a month into almost a quarter of a million dollars effortlessly: the S&P500 ETFs.
What is an S&P 500 ETF?
An S&P 500 ETF aims to mirror the performance of the S&P 500 index itself. When you invest in an S&P 500 ETF, you own a stake in all 500 companies in the index, including giant companies like Amazon, Appleand Microsoft.
One of the main advantages of an S&P 500 ETF is that it is a low-maintenance type of investment. You never have to worry about picking individual stocks or deciding when to buy or sell. All you have to do is invest a little each month and the fund takes care of the rest.
The S&P 500 itself also has an impeccable record when it comes to market volatility. The index has seen dozens of corrections, recessions and bear markets over the decades, and it has managed to recover from each one.
If you’re worried about the current market meltdown, an S&P 500 ETF can ease your worries. Although almost all investments are subject to short-term volatility (and no one can say for sure when the market will recover), this ETF is almost guaranteed to bounce back.
How much can you earn with an S&P 500 ETF?
Although there are many different funds, one of the most popular is the Vanguard S&P 500 ETF (FLIGHT -0.14%). This particular fund has one of the lowest expense ratios among ETFs, charging just 0.03% in fees per year.
Since its inception, this fund has generated an average annual rate of return of nearly 14%. However, this number may be high, simply because this ETF was created in 2010 and did not experience the lows of the Great Recession.
A more realistic return might be closer to 10% per year, on average. That’s pretty much what the S&P 500 itself has experienced, historically.
If you invested $200 per month while earning an average annual return of 10%, here is approximately how much you could accumulate over time:
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To accumulate around a quarter of a million dollars, you will need to invest regularly for around 25 years. But if you have even more time to grow your money, you could earn a lot more than that.
Of course, waiting decades is not easy. But keep in mind that S&P 500 ETFs are passive investments and require virtually no effort on your part. By simply investing as much as you can afford each month, you can build a portfolio worth hundreds of thousands of dollars or more over time.
There is, however, a downside to consider: S&P 500 ETFs cannot beat the market. By definition, they only earn average returns. For many investors, this is a valid trade-off for the overall ease of this investment. But if you’re looking for above-average returns, you might want to consider investing in individual stocks instead.
S&P 500 ETFs, especially the Vanguard S&P 500 ETF, have many advantages. While they’re not the best for everyone, if you’re looking for a hands-off investment that can help you earn big bucks over time, this ETF could be a smart addition to your portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Katie Brockman has positions in Vanguard Index Funds-Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Amazon.com, Apple, Microsoft and Vanguard Index Funds-Vanguard S&P 500 ETF. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
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