Things are happening fast in today's world. Artificial intelligence (AI) has become a central driver for the U.S. stock market. It's a double-edged sword because the growth potential behind AI could unleash an era of growth and innovation. On the other hand, it's early and it's still unclear who the long-term winners might be.
The artificial intelligence opportunity is evident for investors, but picking the individual winners isn't. Perhaps placing multiple bets is the best way to avoid a swing and a miss.
That makes an S&P 500 index fund like the Vanguard S&P 500 ETF (VOO -0.44%) a no-brainer for long-term investors. It's probably not the cutting-edge investment pick you'd expect, but I'll detail why it's the ideal choice for investors looking to ride AI's immense potential to portfolio riches.
Getting rich generally doesn't happen overnight, but you can get there over time by investing $25,000 and steadily adding to it. Here is what you need to know.
The S&P 500 offers easy exposure to today's technology leaders
A group of stocks nicknamed the "Magnificent Seven" has thrived on multiple growth stories over the past decade, ranging from cloud computing to digital advertising. Due to their existing dominance and vast financial resources, these companies are early leaders in artificial intelligence.
These seven companies -- Alphabet (Google), Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla -- are involved in various AI opportunities, including:
- AI models
- The chips that train and operate the AI models
- The cloud computing platforms the AI models run on
- Consumer and enterprise software using AI
- Emerging industries like self-driving vehicles and humanoid robotics
There's no guarantee that these companies will remain on top forever, but it's tough to argue against the firm footing their existing competitive advantages give them. It's also hard to know how these stocks will perform in the future. They may all do well, or the results might be mixed.
The S&P 500 solves these problems. The index allocates between 2% and 8% of the index to each stock in this group. That gives the Magnificent Seven a total index weight of 33.4% today. You'll benefit from the group's collective success as these companies compete to lead AI.
Since the index is market cap-weighted, the winners will slowly represent more of the index while underperforming stocks fall off.
The index's diversity and mechanics cast a wide net to capture AI's broader potential
While the Magnificent Seven is an impressive group, focusing all your efforts on them would be risky. There's no telling what the future holds. Recently, a cost-effective AI model out of China called DeepSeek sent the market scrambling to evaluate some of these companies.
Is it short-term noise? Or is it a new competitive threat? Nobody knows for sure, which is why you should diversify. Fortunately, the remaining two-thirds of the index contains 492 companies across technology and other sectors. Eventually, AI should spread outside the companies building it and provide tangible value to other industries.
For example, AI agents might replace humans in call centers, making corporations more profitable. Restaurant companies like McDonald's might automate their operations to replace human workers. As these prominent companies (with the money to invest in new technologies) thrive, they'll likely enter the S&P 500. Or, if they're already in the index, they'll earn higher weights as they grow.
Currently, most investors focus on AI in a very concentrated capacity. But just like the internet eventually did, AI will mature, and companies across the economy will benefit.
Reliable historical performance paints a clear path to long-term wealth
If you zoom out, it makes sense. The S&P 500 index has been around for generations and has successfully captured America's growth and innovation.
Just look at how the index has done over time:
That would've taken $25,000 invested in the early 1950s and turned it into nearly $9 million today.
Historically, the S&P 500 has generated 10% annualized total returns (including dividends) for nearly a century. Investing always involves risk, but the S&P 500 is about as proven a place you'll find to park your money. Just for fun, suppose the S&P 500 averages just 8% annualized total returns over the next 30 years.
Under those assumptions, investing a one-time lump sum of $25,000 wouldn't get you to $1 million. However, investing $25,000 and adding $500 monthly would still make you a millionaire in 30 years. If the index does achieve its historical returns, it would make you a millionaire four years sooner.
Artificial intelligence is exciting, but it's unpredictable. Investors should diversify to give themselves the best chance of riding AI's long-term potential for outsize returns. The Vanguard S&P 500 ETF may not be flashy, but it's arguably the easiest way to avoid missing out.
