History Says This 1 ETF Can Set You Up for Life With Practically Zero Effort on Your Part
Key Points
The S&P 500 and the U.S. economy have consistently grown together over time.
The S&P 500 has averaged nearly an 11% annual total return since the start of 1990.
Consistently investing in an S&P 500 ETF has been one of the surefire ways to build wealth over time.
- 10 stocks we like better than Vanguard S&P 500 ETF ›
One investing misconception is that you need to find the next big thing or become the next Warren Buffett to make a lot of money in the stock market. That couldn't be further from the truth. Building wealth in the stock market can be as simple as routinely investing in a quality ETF and letting time and compound earnings do the heavy lifting.
With the hundreds of ETFs to choose from, one that stands out as a virtual no-effort, no-brainer option is the Vanguard S&P 500 ETF (NYSEMKT: VOO). It's one of the ultimate set-it-and-forget-it investments, checking a lot of boxes at once and letting investors stay hands-off.
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Banking on the growth of the U.S. economy
A few factors work in VOO's favor: its diversification (though it's more concentrated than it has historically been), its low expense ratio (0.03%), its holdings (almost all of the market's blue chip stocks), and its close ties to the U.S. economy.
The S&P 500 (SNPINDEX: ^GSPC) and the U.S. economy are not directly tied in a way that GDP growth and returns always move hand-in-hand in the short term. However, they have historically moved in the same direction.
^SPX data by YCharts
Nothing is guaranteed in the stock market, but betting on the long-term growth of the U.S. economy and S&P 500 is one of the smarter bets you can make. There will be unavoidable hiccups along the way, but the economy and corporate earnings have consistently grown over time, working in investors' favor.
Since the modern S&P 500 debuted in 1957, it has gone through some of the country's worst economic times and stock market crashes, yet it has bounced back from every one. There's no reason to believe that won't continue.
VOO can be a wealth-builder
For perspective, it helps to consider how valuable VOO could be in monetary terms. Since the start of 1990, the S&P 500 has averaged a 10.9% annual total return, so we'll go with that figure for our example. If that continues, here's how much different monthly investments could grow to in different numbers of years:
| Monthly Investment | Value in 10 Years | Value in 20 Years | Value in 30 Years |
|---|---|---|---|
| $250 | $49,900 | $190,400 | $585,700 |
| $500 | $99,800 | $380,800 | $1.17 million |
| $1,000 | $199,700 | $761,600 | $2.34 million |
Table by author. Values rounded down to the nearest hundred.
If we assume the S&P 500's growth slows down and VOO averages a more modest 8% over the long run, you could still build a nice nest egg over time.
| Monthly Investment | Value in 10 Years | Value in 20 Years | Value in 30 Years |
|---|---|---|---|
| $250 | $43,400 | $137,200 | $339,800 |
| $500 | $86,900 | $274,500 | $679,600 |
| $1,000 | $173,800 | $549,100 | $1.59 million |
Table by author. Values rounded down to the nearest hundred.
Past results don't guarantee future performance, and these numbers will inevitably change, but they show how far consistency and compound earnings can take you in building wealth. And with VOO, you don't have to overthink it. Invest and trust that you'll be rewarded over time.
Should you buy stock in Vanguard S&P 500 ETF right now?
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Stefon Walters has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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