Photo by Andre Taissin on Unsplash
In today’s technology-focused world, investing has become easier than ever. The entire process of setting up an investment account can be done online, and buying a stock can be done with a single click. There are even ways to automate buying shares of a company, and it is possible to purchase a fractional share of a company if the share price is too high as well.
With inflation continuing to devalue the global worth of a dollar, investing provides a way to keep your capital from losing its value while also netting profits on top of that. It is no wonder that around sixty-two percent of Americans own stocks today. As a baseline, the Standard and Poor’s 500, or the S&P 500, has returned an average return of eight to ten percent annually. It is for this reason that starting to invest early in life is so crucial; it allows compound interest to stack year over year.
The S&P 500 is technically not a fund that you can buy, but index funds like VOO copy its returns for a small fee. VOO has an expense ratio of less than 0.1%, meaning that it is one of the most cost-efficient ETFs on the market. ETFs, or exchange-traded funds, are essentially baskets of stocks. They hold small shares of many different stocks, bonds, precious metals, or otherwise. This means that they make it easy to diversify a portfolio. In the case of VOO, since it tracks the S&P 500, it allows investors to gain exposure to 500 different companies. However, each company is weighed differently when buying one share of VOO. For instance, you might have more exposure to Apple stock than to a company like CVS.
Even Warren Buffett, arguably the greatest investor in the world, supports the idea of the average investor purchasing index funds. The reason is simple; they require little research and outperform most professionally managed funds. Buffett even bet one million dollars of his own money that an index fund tracking the S&P 500 would outperform a fund from a hedge fund over ten years. He ended up winning that bet and donating the proceeds to charity afterward.
Investing does not have to be complicated. It can be as simple as opening an account and buying up index funds. Of course, there is always the risk of an investment going down in price in the short run, but over a period of ten or twenty years, simple investments can really start multiplying in value. Even with the excellent track record of the S&P 500, it is important to remember that any investment holds risk, whether that be stagnant returns or going to zero. Even the S&P 500 did not produce substantial returns from 2000 to 2010. In fact, the total return during this period was about zero percent. To combat this, I recommend investing a portion of each paycheck at a set interval. For example, you could invest five dollars every week into the stock market. That would be a simple way of getting started, and it would mean that a short economic downturn wouldn’t be an issue; you would be buying at both the peaks and dips of the stock market.
As always, this is not financial advice. Please refer to your own research or talk to a financial advisor before buying any investments.
Be First to Comment