The S&P 500 gets a lot of attention from investors. There’s a good reason for that. The index contains 500 large and profitable U.S. businesses, so it’s a closely watched benchmark to understand how the market is performing.
It has certainly been a money-maker. In the past 10 years, the S&P 500 has generated a total return of 212% (as of April 10), which includes dividends. Recent volatility has pushed it down 15% off its peak.
In an attempt to take advantage of the dip, investors might be ready to put some money to work. If you have $2,000 to invest, consider this S&P 500 exchange-traded fund (ETF).
Buying the Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the best ways to invest in the S&P 500. As mentioned, the S&P 500 measures the performance of 500 large and profitable companies listed in the U.S. At a high level, it can be viewed as a bet on the overall growth of the American economy, one that has done well historically and is characterized by entrepreneurship and innovation.
Vanguard, which sponsors this particular ETF, is a highly respected firm in the industry. The successful asset manager was founded in 1975. As of Dec. 31, it managed a whopping $10.1 trillion, with this ETF having $1.4 trillion in assets under management. This makes it one of the biggest funds of its kind.
The Vanguard S&P 500 ETF gives investors the benefits of diversification. Well-known companies like Apple and Nvidia have a high weighting — not surprising, given they’re some of the most valuable enterprises on Earth. The ETF also owns smaller businesses on the other end of the spectrum.
Investors might think they have the skill set to successfully identify winning stocks, but this isn’t always easy to do. What’s more, you might simply not have the time to research individual businesses.
Mimicking the performance of the benchmark, the Vanguard S&P 500 ETF produced a total return of 211% since April 2015. That 12% yearly gain is much better than the long-term average of about 10% per year.
Assuming the past decade’s performance continues, which is far from a guarantee, a $2,000 investment made today in the Vanguard S&P 500 ETF would be worth more than $63,000 in 30 years. It’s hard to argue with this type of outcome.
Besides the performance, investors should also take a closer look at the cost. This ETF has a low expense ratio of 0.03%. Of that $2,000 investment, just $0.60 goes to Vanguard. At the end of the day, more money stays in the investor’s pocket, which is undoubtedly a favorable outcome.
