Worried About a Decline in Stocks? This Magnificent Index Fund Could Turn $300 Per Month into $1 Million.

Investors have piled into growth stocks, particularly those involved in artificial intelligence (AI), over the past three years, and that's driven the S&P 500 higher -- in fact, the index increased 78% over that time period. These days, investors are still excited about AI, but they've hesitated, on occasion, to leap into these players. Why? AI stocks -- and the stock market as a whole -- have become expensive. And investors worry that any hiccup in the AI story could spark a sell-off.

In fact, in recent weeks, we've seen this happen. Concerns about potential AI spending or even AI's impact on other industries have pushed certain stocks lower. This may be a temporary situation, as earnings reports from the world's biggest AI players, such as Taiwan Semiconductor Manufacturing and Advanced Micro Devices, show that AI demand is going strong.

Still, if you're worried about a decline in stocks now or at some point down the road, there's a way to add safety and possibly million-dollar potential to your portfolio. This magnificent index fund could turn $300 per month into $1 million...

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What is ETF investing?

I'm talking about the Vanguard S&P 500 ETF (NYSEMKT: VOO), an exchange-traded fund that tracks the S&P 500. Before finding out more about this fund, let's take a quick look at ETF investing. ETFs allow you to bet on a particular index or investment theme -- such as biotech or financial stocks -- and gain exposure to many top players with just one purchase.

Buying or selling ETFs is easy, as they trade daily on the market just like stocks. So it's simple to incorporate them into your investing routine. The one thing that sets ETFs apart from stocks, though, is that they come with fees -- expressed as an expense ratio. You'll want to pick up ETFs with an expense ratio of less than 1% to maximize your potential for gains over the long run.

Now, let's consider the Vanguard S&P 500 ETF. You might wonder how this asset could help you -- after all, if the major index falls, so will this instrument that tracks it. That's true. But here's the important point: Over time, the S&P 500 has delivered an average annual return of 10%, meaning that if you invest in the index consistently year after year, you're likely to gain. Meanwhile, when you buy on the dip, you'll get in on this ETF at reasonable or even bargain levels.

The magic of compounding

To truly benefit and even potentially reach the million-dollar mark, you could opt for the following strategy: investing on a monthly basis over a number of years in this fund and taking advantage of the magic of compounding.

Here's how this could work. If you make an initial investment of $900 in the Vanguard fund, then invest $300 monthly for a period of 35 years, the value could reach $1 million. This is considering the S&P 500 continues to generate an average annual return of 10% in the years to come. Even if your investment horizon isn't as long as 35 years, you still could apply this strategy and significantly increase your returns.

It's important to keep in mind that investing in an index fund doesn't replace stock picking. It's still a great idea to look for quality stocks and scoop them up when the price is right. Buying shares in an index fund should be complementary, a way to add safety, strength, and diversification to your portfolio.

Diversification is a big plus. Whether you invest in a fund tracking the S&P 500 or a fund specializing in a certain industry, you'll gain exposure to many stocks with just one purchase. This is great because if one or a few of those stocks suffer, the others may compensate.

All of this makes the Vanguard S&P 500 ETF a great long-term choice for investors -- and if you're worried about market declines, now is the perfect time to put this strategy in place.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Taiwan Semiconductor Manufacturing, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.