New to Investing? Lean on This ETF for Maximum Simplicity.

If you want to build wealth for retirement (or in general), one of the most important things you can do is start investing as early as possible. The sooner you're able to put your money to work, the more time it has to potentially grow through compounding, where your investment gains can generate additional gains over many years.

But knowing you should invest and actually choosing what to invest in are two very different things. When you're new to investing, the options can feel endless. And the idea of choosing stocks individually can feel overwhelming.

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That's where exchange-traded funds, or ETFs, can help. Instead of trying to pick individual winners, you can buy a fund that gives you exposure to many companies at once. And there's one ETF in particular that could serve as a good starting point if you're trying to kick off your investing journey.

Why the Vanguard S&P 500 ETF is ideal for new investors

When you don't have much experience investing, putting money into a fund that gives you access to a wide range of companies and industries is important. That's where the Vanguard S&P 500 ETF (NYSEMKT: VOO) comes in.

By investing in the Vanguard S&P 500 ETF, you're buying a fund that tracks the S&P 500 and represents about 500 of the largest publicly traded companies in the U.S.

The biggest appeal is simplicity. A single investment allows you to spread your money across some of the biggest and most established companies across sectors that include technology, healthcare, financial services, consumer goods, and other major industries.

This diversification can help reduce the risk of relying on one company's success. If one stock performs poorly, the impact on your overall investment is limited because your money is spread out across hundreds of businesses.

Best of all, since the Vanguard S&P 500 ETF is passively managed, you won't pay a lot to own it. The fund's expense ratio is a very reasonable 0.03%, which means your fees won't heavily erode your returns.

What to know before investing in the Vanguard S&P 500 ETF

Perhaps the biggest benefit of the Vanguard S&P 500 ETF is that it removes much of the complexity from investing. You don't need to spend hours analyzing individual companies or trying to predict which stocks will perform best. Instead, you can focus on freeing up money in your brokerage account or IRA so you can continue buying shares of the fund.

This doesn't mean the Vanguard S&P 500 ETF is a risk-free investment, though. Because the fund invests in stocks, its value can rise and fall with the market. During major downturns, you could see your portfolio lose value. If you're going to buy shares of the Vanguard S&P 500 ETF, make sure you're willing to hold them for many years.

Another thing you should know is that right now, the Vanguard S&P 500 ETF is heavily concentrated in the tech sector, which means it offers diversification but perhaps not as much as you think. An equal-weight ETF could be a better choice if you're looking to minimize sector risk.

You should also understand that the Vanguard S&P 500 ETF only invests in large U.S. companies. If you want exposure to international stocks, smaller companies, or other assets, you may need to branch out to create a more complete portfolio.

Still, one thing the Vanguard S&P 500 ETF may be instrumental in doing is helping you get started. When you're new to investing, sometimes you need a push. The Vanguard S&P 500 ETF is a straightforward way to start putting money into the stock market without having to do a ton of research. And that alone has a lot of value.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.