The S&P 500 had a fantastic 2024, roaring into a bull market and going on to deliver a 23% gain. And that’s after already climbing in the double-digits the previous year. Of course, even though the bull market is going strong, it’s impossible for anyone to predict with 100% accuracy whether the index will continue the momentum this year.
But there’s reason to be optimistic. The strength of artificial intelligence (AI) stocks last year, which drove market gains, may continue as we’re still in the early stages of this growth story. Analysts predict that today’s $200 billion AI market will reach $1 trillion by the end of the decade. And a lower interest rate environment may reduce the expenses of companies with high debt and strengthen the consumer’s wallet too.
On top of this, no matter what happens this year, over time the S&P 500 has proven itself to be a winning investment. It’s delivered an annualized average increase of 10% since its launch as a 500-company index in the late 1950s. So how can we benefit from the S&P 500’s strength over time? By investing in a fund that tracks it. Here’s the best one to scoop up with just a little more than $500 right now.
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Trading like stocks
First, though, let’s talk about exchange-traded funds (ETFs) as the fund we’ll consider -- the Vanguard S&P 500 ETF (VOO -1.57%) -- falls into this category. These particular assets are easy to invest in, trading daily on the market just like a stock. So, if you’re used to buying stocks only, you’ll still be in familiar territory if you invest in an ETF.
The one main difference between owning an ETF versus a stock is ETFs come with fees as expressed through expense ratios. You’ll want to choose an ETF with an expense ratio of less than 1% so that it doesn’t weigh on your returns over the long run. The Vanguard S&P ETF’s ratio is only 0.03%, so it meets our criteria by a mile.
Another great thing about ETFs is they offer you instant diversification -- across either an index like the S&P 500 or a particular theme like biotech or retail. So, through one purchase, you’re getting exposure to a huge number of players.
So now let’s zoom in on the Vanguard S&P 500 ETF. It offers you exposure to the 500 companies powering today’s economy -- and since the index rebalances regularly, admitting new members to reflect the day’s strongest companies and removing others, you’ll always find yourself invested in the top companies of the times. (After every rebalancing, the ETF must mimic the moves made by the index to continue reflecting its performance.)
A big position in technology
Today, the Vanguard fund is heavily weighted in technology stocks -- they represent 31%. And most of the fund’s top 10 holdings, led by Apple, Nvidia, and Microsoft, are tech companies. But, like the index itself, the fund also includes 10 other industries, with weightings between about 2% and 13%. So, as mentioned above, even though the fund favors the strongest themes of current times -- in this case, technology -- it still offers you exposure to a wide range of other areas.
This way, you benefit from the strength of the market’s top performers, but if one stock or industry falters, the ETF’s presence in many players will limit the negative effects.
All of this makes an S&P 500 index fund a rather steady and safe investment that also will offer you growth over the long haul. After all, even after the worst of market times, the S&P 500 always has gone on to recover and gain.
All of this means that right now, the Vanguard S&P 500 ETF, trading for about $540, makes a great investment for the new year and beyond.
