Warren Buffett has made this case repeatedly, and I think he’s right. For most investors, the S&P 500 is the single most effective tool for long-term wealth building. Plus, he has specifically said, “I suggest Vanguard’s” when indicating the best way to do it.
Millions of investors use the Vanguard S&P 500 ETF (NYSEMKT: VOO) as the core of their portfolios. The reason for it is very simple. It provides access to hundreds of the largest and most financially stable companies in the United States. Plus, with an expense ratio of just 0.03%, it costs almost nothing to invest in it.
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Why an investment in VOO is the single best decision you can make
For as much as we hear about the need for diversification across dozens of stocks or a bunch of ETFs, a long-term savings plan doesn’t need to be that complicated.
As someone who follows the financial markets for a living, it’s easier for me to understand how to layer different investments into a complete portfolio. But for the typical person without a finance degree, investing in the Vanguard S&P 500 ETF will still work well.
That’s because by investing in the entire index, you’re not trying to pick individual winners. You’re simply investing in long-term U.S. economic growth. You’re investing in the idea that the economy will continue expanding, U.S. corporations will continue to be profitable, and the compounding effect of this over years, if not decades, will create the wealth that will allow you to live and retire comfortably.
Sure, not every company will be successful. Some might go bankrupt along the way. But that’s the beauty of investing in hundreds of companies in a single ETF. The good usually outweighs the bad over time. The net effect is what helps build the value of your savings.
Start investing in VOO, keep investing in VOO
The best financial decision you can make isn’t just to invest in the Vanguard S&P 500 ETF. It’s to keep investing in it.
By continuing to build that portfolio brick by brick, you help ensure that the biggest component of your portfolio’s value comes from the compounding of capital growth and income over time. The long-term average annual return on the S&P 500 over the past century is around 10%. If you experience that kind of return over years and years, your initial investment can grow to several times what it started as. Do that with a regular investment every month, and the wealth can accumulate quickly.
