The Ultimate Guide to Investing in the Vanguard S&P 500 ETF for Maximum Returns

The S&P 500 (SNPINDEX: ^GSPC) is a wealth-building machine, and it has the potential to turn small monthly contributions into hundreds of thousands of dollars or more with enough time.

While it's impossible to invest in the index itself, you can invest in an index fund or exchange-traded fund (ETF) that tracks the S&P 500. The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the most popular S&P 500 ETFs, aiming to replicate the index's performance while mirroring its underlying stock portfolio.

There's not necessarily a wrong way to invest in an S&P 500 ETF, but some strategies are better than others when it comes to maximizing your wealth. Here's exactly how to make the most of the Vanguard S&P 500 ETF.

Image source: Getty Images.

1. Get started as soon as possible

Time is your most valuable asset when building wealth in the S&P 500. Compound earnings allow your investments to grow exponentially the more time they have to grow, as you're earning returns on your entire portfolio balance -- not just the amount you've contributed. Over time, this has a snowball effect on your earnings.

It can be tempting to wait to invest until you have more to contribute, but every year matters. For example, say you're earning a 10% average annual return on your investment, and you could either invest $100 per month now or $150 per month beginning in five years. Here's approximately how your savings would grow in both scenarios:

Data source: Author's calculations via investor.gov.

Although you're investing more per month in the second scenario, those five years would cost you thousands of dollars in total earnings. Even if you can't afford to invest much right now, getting started earlier is almost always better than waiting.

2. Invest regularly

Market volatility is one of the most daunting aspects of investing, and it can be tough to know when it's the right time to buy. The good news, though, is that by investing consistently, there's never necessarily a bad time to invest.

Dollar-cost averaging is a popular strategy among long-term investors, and it involves investing set amounts at regularly scheduled intervals throughout the year. That could be weekly, monthly, or even quarterly, if that better aligns with your financial goals.

Sometimes, you'll end up buying during the market's record highs. Other times, you'll invest at rock-bottom prices. The goal, though, is for those highs and lows to eventually average out. This reduces the impact of price fluctuations, helping limit the risk of mistiming the market.

3. Avoid getting caught up in short-term fluctuations

The stock market will always experience short-term ups and downs, and even the safest investments are not immune to volatility. But if you panic-sell your investments during a rough patch, you risk locking in losses.

Over time, the S&P 500 is all but guaranteed to see positive gains. In fact, analysis from Crestmont Research found that throughout the index's entire history, there has never been a single 20-year period in which the S&P 500 experienced negative total returns.

To be clear, the S&P 500 experienced numerous recessions, corrections, and bear markets within many of those periods. In the last 20 years alone, we've faced everything from the Great Recession to the COVID-19 crash to the bear market throughout 2022. Yet the S&P 500 is still up by 455% since 2005.

^SPX data by YCharts

Because the Vanguard S&P 500 tracks the S&P 500 index, it's very likely to continue seeing positive total returns in the coming decades. To maximize your earnings, though, it's important to stay invested for the long haul despite any short-term volatility.

The Vanguard S&P 500 ETF is a fantastic investment with plenty of potential for substantial long-term growth. With the right strategy, you could build life-changing wealth.

Katie Brockman 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.