This index fund provides access to today’s best stocks.
If you’re just starting out on your investing journey, the idea of picking your first batch of winning stocks can seem scary. After all, researching individual stocks and industries takes time and effort, which can seem like a huge undertaking if you’re starting from scratch. You could choose stocks from the best performing stocks today, but you may not have the budget to invest in more than one or two stocks. A winning portfolio also ideally includes many stocks across a variety of industries.
Before you postpone this project to another day, consider other options. In just one easy step and for less than $600, you can bet on hundreds of companies that power today’s economy. You can do this by purchasing a fund that tracks the performance of the S&P 500. Here we take a closer look at this ideal way for beginners to enter the market.
Image source: Getty Images.
Companies driving growth
First, let’s take a look at the S&P 500 and why it’s a good idea to invest in its performance. As mentioned earlier, this index includes companies that are driving growth today. This benchmark is rebalanced quarterly to ensure it has the right members, so owning assets that track the benchmark will ensure you are always investing in the strongest companies of the era. can. For example, the index recently recognized Palantir Technologies, a company that has shown tremendous growth over the past few years.
Second, the S&P 500 has proven to be a winning investment, returning approximately 10% annually since its inception in the late 1950s. If you look at the chart below, you can see that even though the S&P 500 goes through tough times, it always recovers and continues to rise. This means that those who continue to bet on the S&P 500 are also winning.
^SPX data by YCharts.
All of this means that investing in the performance of the S&P 500 is a great way for beginners to start investing, as it is a clear path to winning in the long run. And that means lower risk.
Now, let’s consider how to actually make index investments. You can do this by buying shares in exchange-traded funds (ETFs) that hold stocks of S&P 500 members and mimic the performance of the benchmark. But don’t worry. Investing in ETFs isn’t complicated. ETFs are traded daily on the market and can be purchased just like stocks.
Consider expense ratio
One of the main differences between owning stocks and ETFs is that ETFs charge fees. You can find out more details by looking at the expense ratio. To maximize long-term returns, choose an ETF with an expense ratio of less than 1%.
The SPDR S&P 500 ETF Trust (SPY 0.43%) has an expense ratio of 0.09% and includes exposure to top companies that have soared in recent months, from tech giants Nvidia and Meta Platforms to pharmaceutical giant Eli Lilly. This requirement is met. Although the information technology industry is heavily weighted at 32%, the fund also includes 10 other sectors, giving it plenty of diversification. This is important because if one sector takes a hit, another may compensate.
Given the S&P 500’s mission to incorporate today’s leading companies, there is no doubt that someday another industry will rise to the top of the index if it generates more growth, a move the SPDR Fund could follow. It will be. This investment therefore provides key ingredients to support long-term success: diversification, flexibility, and exposure to today’s top names. And this formula has worked for a long time.
Don’t forget to choose the brand
Of course, your investment journey shouldn’t end here. It’s a great idea to take the time to research individual companies and add blue-chip stocks to your portfolio. This can be done gradually and at your own pace. This can significantly improve your portfolio. For example, direct holders of NVIDIA have locked in a 165% gain in the company so far this year, while an SPDR index fund that includes NVIDIA stock is on track for a 22% gain.
Alongside investing in individual stocks, owning a solid S&P 500 index fund is a good strategy. Purchasing the SPDR S&P 500 ETF Trust is a great way to start this path to wealth building.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Adria Cimino has no position in any stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
