Not Sure What to Invest In? This Low-Cost ETF Is a No-Brainer Buy

Key Points

• Picking individual stocks can be challenging, and investing in an S&P 500 ETF can be a much easier option.

• The Vanguard S&P 500 ETF is a popular option for tracking the broad index due to its low fees.

• 10 stocks we like better than Vanguard S&P 500 ETF ›

Whether you're new to investing in the stock market or you simply don't know which stocks to invest in today, a low-cost exchange-traded fund (ETF) can drastically simplify your investing strategy.

By just holding a diversified ETF in your portfolio that charges minimal fees, you can put yourself in a great position to grow your wealth. And over time, you can invest more money into the fund to accelerate your portfolio's growth.

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A big advantage of investing in an ETF (versus picking individual stocks) is that it can easily provide you with much more diversification than you could achieve on your own. That means less risk tied to individual stocks, and you can still benefit from the market's long-term growth. A fund that can be a suitable option for virtually any type of investor is the Vanguard S&P 500 ETF (NYSEMKT: VOO).

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Instead of trying to beat the S&P 500, just mirror it

Many fund managers and investors aim to outperform the S&P 500. The index is a collection of the 500 leading companies on U.S. markets. It's effectively the cream of the crop, which is why outperforming the index is by no means easy.

Historically, it has averaged an annual return of 10%. In just the past three years, it has generated returns of around 60% (when including dividends) -- that averages out to a compound annual growth rate of approximately 17%. When the market is performing well, as it has in recent years, the S&P will also generate better-than-typical returns.

Trying to outperform the S&P 500 is a tough task, and many fund managers fail to do so. If you can't beat it, you may as well consider just trying to mirror it. That way, at least your portfolio's performance will be in line with the leading index. It may not be an exciting way to invest in stocks, but it can be a safe way to grow your portfolio in the long run. It also saves you the time and effort of deciding which stocks to invest in.

The key is to ensure that you invest in an ETF that tracks the index but doesn't have high fees. This is where the Vanguard S&P 500 ETF comes into play.

A low-cost fund with tremendous diversification

The Vanguard S&P 500 ETF has an expense ratio of just 0.03%, which is one of the lowest ratios that you'll find. Those minimal fees mean that you won't have to worry about expenses eating up a big chunk of your overall returns from the ETF.

And since it mirrors the index, you'll gain exposure to 500 of the best stocks in the world, including Nvidia, Tesla, Walmart, and many other big-name companies. Tech stocks, due to their size, make up more than one-third of the fund's overall position, followed by financials (14%) and consumer discretionary stocks (10%). Other sectors are also included, but they represent smaller positions in the ETF.

The wide diversification you'll get from the Vanguard ETF makes it one of the best options for tracking the S&P 500 index (since you can't directly invest in it). By having exposure to the best stocks and the fund making any adjustments and rebalancing for you, it takes the guesswork out of deciding which stocks to hold in your portfolio. This is why the Vanguard ETF can be a great long-term investment to hang onto.

The Vanguard S&P 500 ETF is a no-brainer investment for the long haul

While there are never any guarantees with respect to future returns, the stock market has continued to rise and grow in value over the long haul, and it's likely to do so for the foreseeable future. Having a position in this Vanguard ETF can be an ideal way to benefit and profit from all that growth.

Should you invest $1,000 in Vanguard S&P 500 ETF right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Tesla, Vanguard S&P 500 ETF, and Walmart. The Motley Fool has a disclosure policy.