Have $1,000 to invest in stocks? Put it in this index fund

Putting your money to work in the stock market is a smart way for people to start building lasting wealth. However, the first mental hurdle is that things may seem very complicated at first. And this may keep investors on the sidelines.

But it doesn’t have to be this way. stock investment It’s incredibly easy. In fact, even a small amount of capital can go a long way.

If you have $1,000, you’re ready to invest in the new year. S&P500 index fundlike below Vanguard S&P 500 ETF (VFIAX 1.24%). Here’s why it’s a smart idea:

Provide proper exposure

If you look at financial news, you’ll quickly see that the S&P 500 is one of the most talked about topics. This is a broad index that includes the 500 largest companies in the United States. Perhaps more importantly, these companies are some of the most profitable.

Market participants use the S&P 500 to measure the performance of stock prices over a specific period of time, as it is widely considered to be a good representation of current conditions. From an investor’s perspective, putting money into this provides a thorough understanding of the growth of the American economy. Historically, this has been a very lucrative bet.

The Vanguard S&P 500 ETF is a smart choice because it comes from a reputable company that was founded nearly 50 years ago. The fund itself is one of the largest, with total assets of $937 billion. This should give investors peace of mind that their funds are in a safe place.

One of the most important things to keep in mind is the pricing structure. The Vanguard S&P 500 ETF has an expense ratio of just 0.04%. This means that of every $1,000 you invest, only $0.40 per year goes to the fund sponsor. In this case, investors will keep more of their money over the long term, potentially increasing their returns.

Another important factor to understand is the fund’s track record. Over the past 40 years, the Vanguard S&P 500 ETF has risen at a compound annual rate of 11.2% (including dividends), and today his $1,000 would have turned him into nearly $70,000. Not too terrible for a completely passive strategy.

Such annualized gains may not seem surprising at first, but considering that a whopping 95% of active fund managers lose to the S&P 500 over a 20-year period, You need to set yourself up to outperform the so-called experts by walking the walk. It almost seems like an obvious decision.

Investing in this index fund is not only beneficial from a purely financial perspective, but it also does not require extra time to research individual stocks or make asset allocation decisions. It can be automated and requires no maintenance. And this strategy frees up your time to focus on what you care about most, whatever it is.

smart approach

Investors who want to significantly increase their profits can make small additional investments each month or quarter on top of their initial $1,000 outlay.this is called dollar cost averaging methodand over a long period of time, it can do a great job of increasing someone’s nest egg.

If you invested $1,000 in the Vanguard S&P 500 ETF 40 years ago and invested an additional $50 each month, you would have a balance of $461,000 today without additional monthly cash injections. Compare that to the $70,000 I mentioned. It’s not even the same ballpark.

This strategy shows that time in the market is far more important than timing the market’s ups and downs, which is a futile exercise. Additionally, investors benefit from developing the habit of consistently saving.

The Vanguard S&P 500 ETF is a smart addition to your portfolio because the numbers speak for themselves.