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Investing in the stock market is one of the best ways to create long-term wealth, and now is the best time to buy as the market is booming.
However, deciding where to invest can be a difficult task. There are seemingly endless stocks and funds to choose from, but investing in the wrong places can easily result in more losses than gains.
Fortunately, it’s easier than you think to keep your money safer while reaping big profits over time. Investing preferences vary depending on your goals and risk tolerance, but he has one index fund that is perfect for beginners and requires little effort.
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Best investment for beginners
Whether you are completely new to the stock market or simply want a hassle-free investment that requires little effort. S&P500 Index funds may be a great option.
An S&P 500 index fund is a collection of stocks rolled into a single investment and is intended to track the S&P 500 itself. This means that by investing in one index fund, you instantly own shares in every company in the S&P 500, and your investment should reflect the index’s performance over time.
S&P 500 index funds have several distinct advantages that make them an especially smart choice for new investors.
- Instant diversification: All S&P 500 index funds contain stocks from 500 of America’s largest and strongest companies in a variety of industries. This instantly creates a diversified portfolio with just one investment, significantly reducing the time and effort you spend researching where to buy. If you’re looking for a low-maintenance investment, this is a no-brainer.
- A-list collection of stocks: The companies listed on the S&P 500 are among the most robust in the world, so this index fund is much safer than many other funds. All stocks are subject to short-term fluctuations, but healthy companies are much more likely to recover and achieve long-term growth.
- Excellent long-term track record: The S&P 500 itself has a 100% success rate when it comes to recovering from crashes, recessions, and bear markets. In fact, analysts at Crestmont Research looked at the long-term performance of this index and found that every 20-year period ended with a positive total return. This means that if he invested in an S&P 500 index fund at some point in history and simply held it for 20 years, he would have made a profit.
S&P 500 index funds make for a great “set it and forget it” type of investment. There is little maintenance required as there is no need to select individual stocks or worry about when to buy or sell. Just invest consistently and stay invested through the ups and downs of the market and you’re almost guaranteed to experience positive returns for decades.
How much money can you make with an S&P 500 index fund?
Markets can be unpredictable in the short term, but over the decades, the S&P 500 has been incredibly stable. Historically, the market itself has earned an average annual return of about 10%. This means that annual highs and lows average about 10% per year over several decades.
However, to be on the safe side, let’s assume that your future investments will only earn you an average return of 7% per year. At this rate, if you invest, say, $300 per month, here’s the approximate amount you can accumulate over time.
| years | Total portfolio amount |
|---|---|
| 20 | $148,000 |
| twenty five | $228,000 |
| 30 | $340,000 |
| 35 | $498,000 |
| 40 | $719,000 |
Data source: Author calculations via investor.gov.
You can increase your returns by increasing the amount you invest each month, but you can truly maximize your returns by increasing the amount of time it takes for your money to grow. Therefore, starting investing as early as possible is one of the best things you can do to make as much profit as possible in the stock market.
One major drawback to consider
Like all investments, S&P 500 index funds have drawbacks. Perhaps the biggest drawback of this particular investment is that it only provides average returns. You can’t beat the market because it’s designed to follow the market.
For many people, the ease and simplicity of this investment outweighs the average returns. An S&P 500 index fund can make you hundreds of thousands of dollars over the long term. If you’re willing to sacrifice more potential returns in exchange for a safe investment that requires little effort, this may not be a huge downside for you.
On the other hand, if maximizing your returns is your priority, investing in individual stocks may be a better option. This approach requires much more research and consumes more energy, as you have to research each stock you buy and monitor industry trends. But with the right collection of stocks, you can earn significantly higher returns than an S&P 500 index fund.
The right investment for you depends primarily on your goals and the amount of effort you are willing or able to allocate to your portfolio. If you’re looking for a simple, safe, low-maintenance investment that’s likely to perform well over time, an S&P 500 index fund may be right for you.
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