How should beginners invest in stocks? Let’s start with this ETF.

One of the most important things when you start investing is to make it as simple as possible. Investing doesn’t have to be complicated, especially if you’re learning.

A great way to simplify is to invest in exchange-traded funds (ETFs), which are funds that trade on the stock market like individual stocks. If you are a beginner looking for the best way to invest in stocks, look no further. Vanguard S&P 500 ETF (VOO 0.04%).

What is the S&P 500 Index?

An index is a theoretical collection of stocks grouped according to certain criteria. Criteria may relate to size, industry, style, or other characteristics.

of S&P500 An index that tracks the 500 largest stocks traded on the U.S. stock market. Market capitalization. The S&P 500 ETF is a fund assembled by various financial institutions to reflect the S&P 500. Since these ETFs reflect the same index, there are usually no obvious differences other than cost.

A single ETF covers a lot of ground.

The Vanguard S&P 500 ETF is a great go-to stock: diverse, low cost, and proven. past results. Diversification is important for all investors, regardless of their experience. You don’t have to worry about a downturn in a particular sector or company having a negative impact on your entire portfolio.

The Vanguard S&P 500 ETF includes 505 stocks from all 11 major sectors (percentages are in ETF amounts as of January 1).

• Information technology: 29.5%
• Finance: 13.1%
• Healthcare: 12.8%
• Consumer voluntary: 10.3%
• Communication services: 8.9%
• Industrial: 8.6%
• Daily necessities: 6.1%
• Energy: 3.8%
• Real estate: 2.4%
• Material: 2.3%
• Public works: 2.2%

The ability to invest in hundreds of companies simultaneously with a single investment is a huge benefit, especially for novice investors. You don’t have to spend a lot of time researching hundreds of companies. The S&P 500 is a good representation of the entire U.S. economy, so rely on it.

Vanguard S&P 500 ETF has historically performed well

Since its inception in September 2009, the Vanguard S&P 500 ETF has a total return of approximately 485%, with an average annual total return of approximately 14%. Below is the result if his one-time investment of $10,000 was made at the start.

VOO Total Return Level Data by YCharts

Specific results aside, the important thing for new investors to note here is the importance of getting started as early as possible and riding out short-term fluctuations. Investing is a game of ups and downs, and stock market volatility is inevitable.

The bottom line is that good companies create great value when held over the long term, and the Vanguard S&P 500 ETF consistently shows that. While past results are no guarantee of future performance, the ETF’s track record is encouraging.

Fees may seem small, but they can add up to a big expense

There are many S&P 500 ETFs, but I prefer the Vanguard S&P 500 ETF because of its low expense ratio (fees as a percentage of total investment). The Vanguard S&P 500 ETF has an expense ratio of 0.03%, which equates to $0.30 per $1,000 invested.

For comparison, the largest S&P 500 ETF by assets under management is SPDR S&P 500 ETF trust, the expense ratio is 0.0945%. If you invest $6,000 per year ($500 per month) in each ETF, the value of your investment after fees is:

Calculations by the author. Values ​​are rounded to the nearest hundred.

Expense ratios are often overlooked because they don’t seem like a big difference on paper, but in reality, small differences in fees can add up to thousands of dollars.

For many people, the most difficult part of investing begins now, but time is an investor’s best friend. I don’t think you need to know a lot or have a lot of money to get started, so start early. Perhaps in the future you will thank yourself.