Why this ETF is all you need to grow rich.
If you've got $500, you could invest it all in a single stock. But a better move is to buy an exchange-traded fund (ETF) that lets you invest your money across hundreds, or even thousands, of stocks -- all in just one purchase.
The Vanguard S&P 500 ETF (VOO 0.47%) is one of the most reliable investments on the planet, and it has dirt cheap fees. Read on to learn how a $500 investment in this top S&P 500 index fund could send your net worth skyrocketing.
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What is the Vanguard S&P 500 ETF?
The Vanguard S&P 500 ETF, or VOO, is a fund that tracks the S&P 500 index, a collection of 500 of the largest and most profitable publicly traded companies in the U.S. The fund's top five holdings are as follows:
1. Microsoft(MSFT 0.35%)
2. Apple(AAPL 0.26%)
3. Nvidia(NVDA 0.22%)
4. Amazon.com(AMZN 0.36%)
5. Meta Platforms Class "A" shares (META -0.03%)
With this fund, or any index-tracking fund for that matter, the goal is to replicate the underlying index as closely as possible. So if the S&P 500 index notched returns of 20%, you'd expect the VOO to deliver about the same returns, minus fees. But since the VOO's ETF expense ratio is an ultra-low 0.03%, meaning just $3 of a $1,000 investment goes toward fees, the fund's returns are almost identical to those of the S&P 500 index.
How to grow $500 into $1 million
If you starting investment is $500 and you can budget an additional $500 each month, your investment could grow to $1 million after about 30 years. Historically, the S&P 500's average annual returns are around 10%.
Returns are significantly higher in some years, while the index has negative returns in some year. But even after prolonged downturns, the S&P 500 index has an incredible track record of bouncing back.
Here's how a $500 monthly investment could grow over time, assuming 10% average annual returns.
| Time | Growth of $500 Monthly Investment |
|---|
| After 5 years | $39,391 |
| After 10 years | $102,025 |
| After 20 years | $365,367 |
| After 30 years | $1,048,371 |
Data source: author.
Investing in the VOO isn't going to make you a millionaire overnight. But if you consistently invest over a long period, earning market returns allows your money to compound into serious wealth thanks to the power of compounding.
It's essential to stay the course even during a bear market, when you may be tempted to put your investments on pause -- or worse yet, cash out. Most investors fare best when they practice dollar-cost averaging, a strategy where you invest a set amount on schedule, regardless of whether the market is up or down. Investing $500 in the VOO at the beginning of each month is an example of dollar-cost averaging.
If you want to supercharge your returns on Vanguard's S&P 500 ETF, consider opening a Roth IRA to buy your shares. You won't get an upfront tax break, but if you follow the rules, all withdrawals will be tax-free in retirement. Given the power of those compound earnings, investing in the VOO through your Roth IRA could lead to substantial tax-free wealth in the future.
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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Robin Hartill has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, Nvidia, 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.
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What is the best way to invest $500 in the stock market? ›
If you've got $500, you could invest it all in a single stock. But a better move is to buy an exchange-traded fund (ETF) that lets you invest your money across hundreds, or even thousands, of stocks -- all in just one purchase.
What is the 4% rule Motley Fool? ›
It states that you can comfortably withdraw 4% of your savings in your first year of retirement and adjust that amount for inflation for every subsequent year without risking running out of money for at least 30 years.
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Yes, if you can follow The Motley Fool's investing philosophy, a subscription to Motley Fool Stock Advisor is almost certainly worth the investment. For a relatively small amount of money, you get access to historically S&P500-beating picks, reports, and a robust trading community.
What stock does the Motley Fool recommend in 2024? ›
The Motley Fool has positions in and recommends Alphabet, Salesforce, Snowflake, and UiPath.
What are the 5 AI stocks Motley Fool recommends? ›
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia.
What are Motley Fool's double down stocks? ›
"Double down buy alerts" from The Motley Fool signal strong confidence in a stock, urging investors to increase their holdings.
What are the top 5 ETFs to buy? ›
7 Best ETFs to Buy Now
| ETF | Assets Under Management | Expense Ratio |
|---|
| iShares MSCI Global Gold Miners ETF (RING) | $566 million | 0.39% |
| iShares U.S. Insurance ETF (IAK) | $610 million | 0.39% |
| Roundhill Magnificent Seven ETF (MAGS) | $668 million | 0.29% |
| VanEck Semiconductor ETF (SMH) | $22.4 billion | 0.35% |
3 more rowsSep 3, 2024
100 Highest 5 Year ETF Returns
| Symbol | Name | 5-Year Return |
|---|
| FNGO | MicroSectors FANG+ Index 2X Leveraged ETNs | 53.06% |
| ETHE | Grayscale Ethereum Trust (ETH) | 38.43% |
| TECL | Direxion Daily Technology Bull 3X Shares | 36.98% |
| TQQQ | ProShares UltraPro QQQ | 33.21% |
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How to turn $500 into more money? ›
The Best $500 You Can Spend on Passive Income Ideas To Make More Money
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Money for a long-term goal, such as retirement, should be invested. Time allows your money to grow and bounce back from short-term market fluctuations. The potential payoff: $500 invested at a 10% return for 30 years could grow to around $10,000 before inflation, 20 times your initial investment.
What is the best stock to buy with $500? ›
And some can be had without having to break the bank. For those with $500 to spare (that is, that isn't being kept aside for emergencies), let's consider two excellent corporations that are worth investing in right now: Merck (NYSE: MRK) and Novartis (NYSE: NVS).
What is the return on Motley Fool portfolio? ›
Motley Fool Portfolio Strategy Explanation Video
Since 2003, this portfolio has returned 1,179.5%, outperforming the market by 726.7% using its optimal tax efficient rebalancing period and 10 stock portfolio size.
What is the success rate of The Motley Fool stock picks? ›
The Motley Fool Stock Advisor service boasts a record where 48% of its stock recommendations have outperformed the S&P 500 since the inception of the service in 2002. According to my independent assessment, the stocks that beat the market did so by a wide margin, with top performers significantly leading the S&P 500.
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Let's say that you start with the time frame in mind, hoping an investment will double in value over the next 10 years. Applying the Rule of 72, you simply divide 72 by 10. This says the investment will need to go up 7.2% annually to double in 10 years. You could also start with your expected rate of return in mind.
What is the average return from an investment advisor? ›
Source: 2021 Fidelity Investor Insights Study. Furthermore, industry studies estimate that professional financial advice can add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated.
