Putting $1,000 into any investment is a big commitment, with the apparent goal of maximizing your return and minimizing your losses. One implausible option to try this is with an exchange-traded fund (ETF), which means that you can buy shares like you’ll a stock and may be purchased with small amounts of cash.
When you’ve got $1,000 to take a position without delay, there are some excellent reasons that cash should go into an ETF that tracks the S&P 500. Here’s why and which S&P 500 ETF is top-of-the-line to own.
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 most important one is the Vanguard S&P 500 ETF (NYSEMKT: VOO). Buffett’s company currently owns 43,000 shares of the Vanguard S&P 500 ETF, an admittedly small position compared to his other holdings, but he’s made his endorsement of funds that track the S&P 500 very clear.
“For my part, for most individuals, one of the best thing to do is owning the S&P 500 index fund,” Buffett said on the 2020 Berkshire Hathaway annual meeting.
Buffett also said on the 2013 Berkshire annual meeting that just about all the investment assets he’ll leave to his wife can be in an index fund when he dies. He said: “My advice to the trustee couldn’t be more easy: Put 90% of the cash right into a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)”
Index funds have turn into a well-liked investment vehicle because they’re hard to beat. The Vanguard S&P 500 ETF is passively managed, meaning that the cash invested within the fund is used to purchase shares of corporations across the S&P 500 index without attempting to concentrate on picking specific winners.
Not only is that this easier than attempting to work out which stock will beat the market, this strategy often ends in higher 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,” it’s possible you’ll think you will not give you the chance to tap into significant gains, but that is not true. The Vanguard S&P 500 ETF has had a complete return of 257% over the past decade.
One other huge good thing about this particular ETF is that it has a really low expense-ratio fee of just 0.03%. Which means for those who invest $1,000, you may pay just $0.30 in fees, and $10,000 invested within the fund will cost you simply $3.
The S&P 500 has had a historical average annual rate of return of 10.1% since 1957. Some years can be more and a few less, in fact. Also, those returns don’t account for inflation.