I’m in my mid-40s and have been actively investing for about 20 years. My portfolio is a mix of low-cost index funds, dividend stocks, growth-focused companies, and more. In all, I own about 50 different investments, with little concentration in any of them.
When I was getting started, I made some common mistakes. In my early 20s, for example, I thought penny stocks were a smart way to make money and bought a few. Even when I started buying solid businesses, I didn’t understand concepts like diversification and dollar-cost averaging. I built my knowledge and investment style over time.
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To put it mildly, if I were starting over today with the knowledge I have now, I’d do things quite a bit differently. One thing in particular I’d do is to form a backbone to my portfolio before I start buying individual stocks. And there’s one ETF I’d use to do it.
The ETF I’d buy first
I won’t keep you in suspense. If I were starting today with my current investment knowledge, I’d buy the Vanguard S&P 500 ETF (NYSEMKT: VOO). And it would be the only investment I’d buy, at least until I built up my portfolio for a while.
Here’s the reasoning:
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The Vanguard S&P 500 ETF (or any S&P 500 index fund) gives you exposure to the 500 largest U.S. companies. As Warren Buffett has said, it’s a bet on American business.
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The fees are next to nothing. The Vanguard S&P 500 ETF has a 0.03% expense ratio, which means that your annual investment costs are just $0.30 for every $1,000 you invest.
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You don’t need to care too much about how any single stock is doing, or even how the entire market is doing. The S&P 500 has historically produced total returns of about 10% annually, and buying the entire index incrementally over time has been one of the most reliable ways to create long-term wealth.
A solid backbone
To be sure, there is no such thing as a perfect investment, and the Vanguard S&P 500 ETF isn’t an exception. It doesn’t provide much international exposure (all of the companies are U.S.-based), and there’s significant concentration in the largest companies in the market.
However, buying an ETF like this is a great way to form a backbone to your portfolio, from which you can add other ETFs, stocks, bonds, and more. An investment like this is like buying a diversified investment portfolio in a single transaction, and is a great core position to own and add to for many years to come.
