To someone looking to invest in stocks for the first time, it can all seem so complex and intimidating. Trying to figure out how to analyze financial statements, or keeping up with the latest news, all in the name of finding winning companies to own, might be discouraging for those looking to get their feet wet.
Luckily, there’s a simpler solution. Anyone can do it, and it can help achieve lasting wealth over time.
If you’re ready to put even just $1,000 to work in the stock market, I believe it’s a smart idea to invest in the SPDR S&P 500 ETF Trust (SPY 0.20%). Here’s why.
There are lots of advantages
An exchange-traded fund, or ETF, is a smart investment to make. The SPDR S&P 500 ETF Trust, in particular, offers access to a diversified portfolio of all the constituents in the S&P 500, which is an index of the 500 largest businesses in the U.S.
So, you’d get exposure to some of the most dominant tech companies out there, like Apple, Microsoft, and Alphabet. And there would be lesser-known names as well. It’s almost as if you get to bet on the continued innovation and expansion of the U.S. economy. That seems like a good idea, if history is any indication.
When making investment decisions, people can’t ignore the cost of buying and owning these financial products. The annual fee for this ETF is low, at less than 0.1%, making sure you get to keep more of your own money. Even better, ETFs trade on exchanges like normal stocks, providing ample liquidity for investors.
I think the most obvious reason it makes sense to buy this ETF is because you don’t need to be a stock market expert. As I already touched on, actively analyzing stocks is not only extremely time-consuming — it’s a skill that most people might not have, or even care to develop.
Plus, a novice could easily get sucked into the 24/7 news cycle, or various hype stories, and end up investing their hard-earned capital in businesses that have poor fundamentals. This is a recipe for disaster.
The SPDR S&P 500 ETF Trust provides market exposure for anyone looking to put money to work in stocks. The added benefit it has is that it’s a very low-maintenance strategy. The best approach, in my opinion, is to add new capital to the investment on a recurring basis, say monthly, to take advantage of dollar-cost averaging (DCA).
And then you don’t even have to think about it. Just have a long-term mindset, be patient, and have peace of mind that your money is working for you. The SPDR S&P 500 ETF Trust is a great option that allows you to do this.
Proven track record
It’s important to know what kind of returns investors can expect with the SPDR S&P 500 ETF Trust. In the last 20 years, this ETF has seen its value rise 531%. This assumes that dividends were reinvested.
This means that a $1,000 investment in this ETF two decades ago would now be worth $6,300. That’s an outstanding return.
However, if you were to DCA into the SPDR S&P 500 ETF Trust on a monthly basis, adding an additional $50 per month, you’d be sitting on a balance of nearly $41,000. Of course, the higher the initial capital outlay and subsequent monthly additions, the greater the potential gain.
Choosing this ETF could be the first step to achieving your financial goals.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Microsoft. The Motley Fool has a disclosure policy.
