If you've got about $500 to invest, I've got some good news for you. With this amount, you can invest in hundreds of the country's leading companies, and you can do it without lifting a finger. You won't have to pour over earnings reports or worry about whether you've picked a future winner. Even better, this particular strategy has generated triple-digit gains over the past decade.
I'm talking about investing in an index fund that tracks the S&P 500, a benchmark that has advanced over time. So, if history is any guide, following the S&P 500 could lead to significant long-term returns. Which index fund to choose? The Vanguard S&P 500 ETF (VOO 0.11%) makes a perfect choice. Let's find out more about this fund that could boost your portfolio over the long run.
Image source: Getty Images.
Funds that trade like stocks
First, let's talk a bit about exchange-traded funds (ETFs). These funds trade daily just like stocks, with their prices fluctuating throughout the trading session, so you can buy them as you would a stock. Before making a move, though, it's important to consider the ETF's expense ratio because if it's too high, it could eat into your returns. A great rule of thumb is to buy ETFs with expense ratios of less than 1%.
The charm of buying an ETF is that it offers immediate exposure to one particular theme, tracking either an index or an industry, such as biotech or artificial intelligence. So, instead of trying to figure out which stocks within that particular theme will win over time, you'll buy access to a whole basket of them -- this increases your chances of success and limits your risk.
Now, let's get back to your $500 investment and the Vanguard S&P 500 ETF. This particular fund fits our investment criteria when it comes to cost, as its expense ratio is only 0.03%. The Vanguard ETF invests in the companies in the S&P 500 at the same weighting as the index, and by doing this, the fund's performance will mimic that of the index. As mentioned above, the S&P 500 has always advanced over time, so if you're looking for an investment to buy and hold for a number of years, you could win big by choosing this fund.
Today, the Vanguard ETF, mimicking the S&P 500's composition, is most heavily invested in Microsoft, Apple, and Nvidia. Each of these companies has a weighting of more than 6% in the fund. And most of the other big holdings are also in the technology industry.
A big position in tech stocks
In fact, information technology shares make up more than 30% of the fund. That's because tech companies today are powering the economy and generating the most growth, reflected in the S&P 500 and the funds that track it. This has helped the Vanguard ETF climb about 24% over the past year.
But the index and funds that track it remain flexible and attentive to what's happening in the economy. If another industry charges ahead in the future, the S&P 500 and related funds will shift their holdings to more heavily weight that particular sector. This means that by investing in the Vanguard S&P 500 ETF, you'll always be invested in the key companies of the times.
This investment also allows you to diversify across industries. Though the ETF favors tech stocks right now, it also includes positions in 10 other industries, from financials to healthcare, and all of these industries are weighted from about 2% to 12% in the fund.
So, an investment in the Vanguard ETF offers you exposure to today's biggest winners and diversification across a broad range of companies and industries. Of course, one thing to keep in mind is that even though a stock like Nvidia is heavily weighted in the ETF, you won't benefit as much from its gains as you would if you'd directly invested in Nvidia stock. This means ETF investing shouldn't replace stock picking but instead accompany it.
Right now, though, if you have $500 and want to set yourself up for steady gains over the long run -- and without any effort -- it's a great idea to get in on this top Vanguard fund.
