Putting $1,000 into any investment is a significant commitment, with the obvious goal of maximizing your return and minimizing your losses. One fantastic way to do that is with an exchange-traded fund (ETF), which allows you to buy shares like you would a stock and can be purchased with small amounts of money.
If you've got $1,000 to invest right now, there are some very good reasons that money should go into an ETF that tracks the S&P 500. Here's why and which S&P 500 ETF is one of the best to own.
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This S&P 500 ETF comes highly recommended
Billionaire investor and CEO of Berkshire Hathaway Warren Buffett has just two S&P 500 ETFs in his company's $325 billion investment portfolio, and the largest one is the Vanguard S&P 500 ETF (VOO 0.14%). Buffett's company currently owns 43,000 shares of the Vanguard S&P 500 ETF, an admittedly small position when compared to his other holdings, but he's made his endorsement of funds that track the S&P 500 very clear.
"In my view, for most people, the best thing to do is owning the S&P 500 index fund," Buffett said at the 2020 Berkshire Hathaway annual meeting.
Buffett also said at the 2013 Berkshire annual meeting that nearly 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 the trustee could not be more simple: Put 90% of the money into a very low-cost S&P 500 index fund. (I suggest Vanguard's.)"
Low fees and significant returns
Index funds have become a popular investment vehicle because they're hard to beat. The Vanguard S&P 500 ETF is passively managed, meaning that the money invested in the fund is used to buy shares 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 beat passive-indexed peers over the past decade.
if a fund is "passively managed," you may think you won't be able to tap into 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 huge benefit of this particular ETF is that it has a very low expense-ratio fee of just 0.03%. That means if you invest $1,000, you'll pay just $0.30 in fees, and $10,000 invested in the fund will cost you only $3.
Let Vanguard's ETF do the work for you
The S&P 500 has had a historical average annual rate of return of 10.1% since 1957. Some years will be more and some less, of course. Also, those returns don't account for inflation.
But putting $1,000 into the Vanguard S&P 500 ETF and keeping it there for years gives your money lots of potential to grow without you having to adjust investment strategies, pick individual stocks, or follow new trends.
I believe in this strategy, which is why the majority of my portfolio is in Vanguard's S&P 500 ETF. I like the idea of letting most of my money grow without having to do any additional stock research myself, knowing that the ETF will grow over time no matter what big investing trends come along.
