Now that a new year is upon us, you might be setting some financial goals. These can include increasing your savings rate in your retirement plan and adding it to your investment portfolio.
If you don’t know how to approach the latter goal, don’t worry. Even if you are new to investing, there is one option to consider that could make you very rich over time. And best of all, it doesn’t require a ton of research.
Tap into the power of the vast market
When it comes to invest in stocks, you have the choice. You can search for different companies and select individual stocks based on factors like their current stock price and growth potential. Or, you could do a lot less research and just put your money in the stock market at large. If the latter seems like a better decision for you, then it might be the year to refuel. S&P 500 index funds.
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If you are not familiar with index funds, they are passively managed funds whose objective is to match the performance of different benchmarks. Index funds do not employ fund managers to choose specific stocks. For this reason, they come with very low fees because they don’t have a lot of expenses to pass on to the investors.
As you may have already guessed, S&P 500 index funds are index funds specially designed to match the performance of the S&P 500 itself. And since this index is made up of the 500 largest publicly traded stocks, it’s a good benchmark to follow.
One thing you will often hear as an investor is that it is important to build a diversified portfolio for yourself. In the area of equities, this means charging companies in a range of market sectors. S&P 500 index funds allow you to do just that, all without having to spin your wheels digging into the finances of specific companies.
How Much Money Can You Make With S&P 500 Index Funds?
There is no guaranteed return to be expected with the S&P 500. And to be clear, the index can have its share of strong years and its share of years where it underperforms.
That said, the S&P 500 generated an average annual return of around 10% from its inception in 1926 through 2019. This represents years of strong performance and years of the index losing value. And so, if you invest $ 5,000 in S&P 500 index funds in 2022, then leave that money alone for 40 years, you’ll end up with just over $ 226,000 if your portfolio generates an average annual return of 10% for. this period. .
Even if the S&P 500 doesn’t quite offer that 10% return – say, it only gives you an average annual return of 7% over the next 40 years – you’ll still have around $ 75,000 if you invest. $ 5,000 in 2022 and do nothing more. And it’s not too ugly.
Take the guesswork out of investing
Placing your money in an S&P 500 index fund will not allow you to beat the market. But it can give you comfort in knowing that you have diversified your portfolio to a very reasonable extent. Plus, buying stocks in an S&P 500 Index is an easy way to invest. And if you’re new to building a portfolio, this is a great way to start.
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