Putting $1,000 into any investment is a significant commitment, with the obvious goal of maximizing returns and minimizing losses. One fantastic way to do this is with stock exchange fund (ETF), which allows you to buy shares like you would buy stocks and can be bought with small amounts of money.
If you have $1,000 to invest right now, there are some very good reasons to put the money into a tracking ETF S&P 500. Here’s why and which S&P 500 ETF is one of the best to own.
Billionaire investor and CEO Berkshire Hathaway Warren Buffett has only two S&P 500 ETFs in his company’s $325 billion investment portfolio, and the largest Vanguard S&P 500 ETF (NYSEMKT: VOO). Buffett’s firm currently owns 43,000 shares of the Vanguard S&P 500 ETF, which is admittedly a small position compared to his other holdings, but he has made his support for funds that track the S&P 500 very clear.
“In my opinion, the best thing for most people is to own an S&P 500 index fund,” Buffett said at Berkshire Hathaway’s 2020 annual meeting.
Buffett also said at Berkshire’s 2013 annual meeting that almost all of the investment assets he will leave to his wife will be in an index fund when he dies. He said, “My advice to a manager couldn’t be simpler: Put 90% of your money in a very low-cost S&P 500 index fund. (I recommend Vanguard.)”
Index funds have become a popular investment vehicle because they are hard to beat. The Vanguard S&P 500 ETF is passively managed, meaning that the money invested in the fund is used to buy stocks of companies across the S&P 500 index without trying to focus on picking specific winners.
Not only is this easier than trying to figure out which stock will beat the market, this strategy usually results in better returns. Research from Morningstar shows that only 29% of actively managed funds have outperformed their passively indexed peers over the past decade.
if the fund is “passively managed”, you might think you won’t be able to take advantage of significant gains, but that’s not true. The Vanguard S&P 500 ETF has had a total return of 257% over the past decade.
Another big advantage of this particular ETF is that it has a very low cost ratio fee of only 0.03%. This means that if you invest $1,000, you will only pay $0.30 in fees, and $10,000 invested in the fund will cost you just $3.
The S&P 500 has a historical average annual rate of return of 10.1% since 1957. Some years will be higher and some years will be lower, of course. Also, these returns do not take inflation into account.
