When it comes to investing, a common misconception is that you need to be an expert stock picker in order to build wealth. While investing in individual stocks is one way to build your portfolio, it’s far from the only method that works.
In fact, billionaire investor Warren Buffett has often touted that investing in the S&P 500 is a suitable strategy for investors who do not have time to do their own research or are not interested in analyzing specific companies.
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If you have $500 in investable income, that’s all it takes to get started for an investment in the Vanguard S&P 500 ETF (NYSEMKT: VOO). Let’s dig into why this index fund makes the perfect vehicle for beginner investors and explore what strategies you can use to build a seven-figure portfolio just by investing in the S&P 500 index.
What is the Vanguard S&P 500 ETF?
As its name implies, the Vanguard S&P 500 ETF is an index fund that tracks the performance of the S&P 500. Buying shares in the fund provides you with exposure to the stocks that comprise the S&P 500, without actually needing to own shares in the specific companies themselves.
This means that a position in the Vanguard S&P 500 comes with exposure to the “Magnificent Seven” stocks Apple, Microsoft, Nvidia, Meta Platforms, Alphabet, Amazon, and Tesla, as well as leaders in other industries such as Berkshire Hathaway and Eli Lilly.
One thing that makes the Vanguard S&P 500 ETF different from other S&P 500-themed funds is that it is market-cap weighted. This means that the companies with the largest market capitalizations have more of an influence on the fund’s returns.
Another benefit of the Vanguard S&P 500 ETF is that it is cheap to own. The fund’s expense ratio is just 0.03% — meaning that if you invest $500 per month ($6,000 annually), you will pay just $1.80 in management fees to Vanguard.
Image source: Getty Images.
How has the Vanguard S&P 500 ETF performed over time?
While the returns in the S&P 500 can differ significantly from year to year, long-run trends clearly show that the index has climbed higher over time. The graph below illustrates the total return of the Vanguard S&P 500 ETF since inception. Not only has the index returned almost 600% over the last 15 years, but it has even soared to new highs following the latest recession (annotated by the grey column in 2020).
VOO Total Return Level data by YCharts
These dynamics underscore Buffett’s philosophies that building a diversified portfolio and holding on to your winners for long periods of time can result in multi-bagger gains.
Can the Vanguard S&P 500 ETF make you a millionaire?
In the table below, I’ve summarized the gains you can expect by investing $500 per month into the Vanguard S&P 500 ETF over 30 years and expecting a 10% annual return on average.
|
Years |
Future Value |
|---|---|
|
1 |
$6,550 |
|
5 |
$37,435 |
|
10 |
$96,921 |
|
15 |
$192,723 |
|
20 |
$347,013 |
|
25 |
$595,499 |
|
30 |
$995,688 |
Calculations by author.
The table above hits on some really important investment themes. First, building wealth takes time (i.e., patience). In addition, in order to reap the full benefits of compound growth, contributing to your portfolio on a consistent basis is key.
As the trends above illustrate, investing the Vanguard S&P 500 ETF can make you a millionaire — it simply boils down to how much capital you can contribute, how often you make these investments, and how long you plan to hold your position.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Apple, Eli Lilly, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
