April 22, 2024

Got $1,000 to Invest in Stocks? Put It in This Index Fund.

With 2023 in the rearview mirror, our sights are set on what 2024 might bring. For investors, this means figuring out how to allocate new savings in the stock market, which continues to rise with each passing week.

What’s encouraging is that even a relatively small sum of money can go a long way to getting you on the path to financial freedom. And it doesn’t have to be complicated at all, as there are a lot of passive options out there.

If you have $1,000 that you’re ready to invest in stocks, it’s a smart idea to put it in this index fund.

Tracking the S&P 500

When people talk about the stock market, they often are referring to the S&P 500. This is an index that consists of the 500 biggest and most profitable companies in the U.S. An informative way to think about it is that investors can essentially bet on the ongoing growth and success of corporate America. That seems like a good move.

The Vanguard 500 Index Fund Admiral Shares (VFIAX -0.56%) is the right choice for investors who want exposure to the S&P 500. It’s offered by a reputable firm, and the index fund itself has assets under management of more than $900 billion, so you can rest assured knowing that a huge amount of capital is also invested alongside your own money.

There are numerous benefits of going this route. For starters, the fees are very low. You have probably heard of hedge funds charging a 2% management fee and 20% of any profits. With the Vanguard 500 Index Fund, investors pay a tiny annual expense ratio of 0.04%. This means you keep more of your gains, which can add up over time.

Investors also can’t forget about the historical track record. If you placed $1,000 in this fund 20 years ago, you’d be sitting on a portfolio balance of $6,446. That translates to a stellar annualized return of 9.8%. The vast majority of active fund managers can’t replicate this performance.

Besides the fees and performance, which are probably what most people focus on, I think there are some less-known factors, but perhaps more important, to keep in mind with owning the Vanguard 500 Index Fund.

Investing this way requires no special skills when it comes to financial analysis or stock research. It’s a low-maintenance strategy that has proved that it can work. This frees up time for people to spend doing whatever else is important to them.

Owning this index fund ensures that investors have adequate diversification. Buying single stocks adds risk to your portfolio should something bad happen. That’s why it’s a good idea for most people to have broad exposure to the largest tech enterprises, as well as smaller under-the-radar companies. This is what the Vanguard 500 Index Fund provides.

Consistency can boost returns

For investors who plan to make additional contributions to their portfolios over time, there’s a huge opportunity to produce even better returns. Investing even $50 a month until retirement, on top of the initial $1,000 outlay, can have a monumental impact on your financial health.

This is called dollar-cost averaging. It works because it forces investors to consistently add more capital to their portfolios, ensuring they are constantly in the habit of saving. Plus, you avoid having to time the market, instead focusing on being fully invested for the long haul.

While $1,000 might seem like an insignificant amount of capital, it can be a very important step to long-term wealth creation. By buying the Vanguard 500 Index Fund, investors are setting themselves on the right path.

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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