S&P 500, NASDAQ closes record highs in trade deal hopes
All three major US stock indexes recorded weekly profits, confirming that the technological Nasdaq has entered the bull market since the trough on March 8th “liberation day” .
If you’re an investor who wants to put money into the stock market today and forget about it, the S&P 500 Index will help you generate some great returns. The wide range of indexes can track major stocks on US exchanges and provide a wide and comprehensive exposure to the entire market without investing in small and medium-sized businesses.
You’ve probably heard that market investments and perhaps indexes have been a good move historically. But how good is its future profits, and will invest $50,000 in an exchange sales fund (ETF) tracking the S&P 500 create a portfolio worth at least $1 million by the time I retire? Let’s take a look.
Composite returns can increase significantly over the years
Historically, the S&P 500 generated approximately 10% of annual revenue. If your goal is to generate significant growth, it may not seem like that. But this is where patience is rewarded with great enrichment.
Let’s assume you invest in the market and your average annual revenue is 10% over 10 years. By then, your investment will be more than doubled, and it will be worth about 2.6 times the original value. And let’s say you hold even longer – 25 years. If you are supposed to average 10% returns per year, your portfolio will grow to 10.8 times the original value.
This is why everyone can accumulate important returns over the long term, regardless of their investment ability. There’s no secret to that: Investing in Exchange Sales Funds (ETFs) like the Vanguard S&P 500 ETF (nysemkt: flight),Tracking a wide index can be a big long-term strategy with impressive results.
^ SPX data by ycharts.
S&P 500 projections return in the long run
Rather than guessing at what rate the S&P 500 will grow in the future, we created a table showing the potential range of 8% to 12% using a $50,000 investment in a Vanguard S&P 500 ETF or similar ETF with an investment of $50,000 over at least 25 years. This allows you to see both the worst-case scenarios (investments below the S&P’s historical average) and the best-case scenarios (which are far better than usual).
Calculations and tables by the author.
It’s possible to invest $50,000 in today’s S&P 500 ETF to reach $1 million, but if the market is performing poorly, it could take more than 35 years to reach that milestone. The biggest unknown and most difficult variable to explain is the growth rate that has a major impact on your profits, as you can see from the table above.
Why investing in a Vanguard S&P 500 ETF is a big move
By investing in a Vanguard S&P 500 ETF (or similar funds), there is a solid pillar to building your portfolio. You can make small investments in other stocks, but if you have a large portion of your money in an investment exposed to the S&P 500 index, you could get a lot of long-term stability.
And even if you’re not confident about how the market will do it in the long run, it’s better to stick to ETFs like this. Many fund managers struggle to surpass their index.
And while you may be confident about your inventory picking capabilities, when deploying a purchase and retention strategy for a potentially decades-long retirement, it can be much easier and less risky to simply put that money into an ETF tracking your S&P 500.
David Jagielski has no position in any of the stocks mentioned. Motley Fool has posted and recommended positions on the Vanguard S&P 500 ETF. Motley Fools have a disclosure policy.
The Motley Fool is a partner at USA Today, providing financial news, analysis and commentary designed to help people control their financial lives. The content is produced independently of USA Today.
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