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Investing in the stock market is all about creating wealth. Today, through the proliferation of online platforms and no-fee trades, as well as increasing accessibility of investment advice, anyone can generate life-changing wealth.
There are many ways to become a millionaire over time, but there’s one method that’s simple, low-risk, and time-tested. I’m talking about buying an exchange-traded fund (ETF) that tracks theS&P 500.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Becoming an S&P 500 millionaire
Let’s take a step back and discuss what the S&P 500 is. It’s often used as a proxy for the market, but as its name implies, it’s an index of 500 stocks. There are various criteria to be included, such as having a minimum market capitalization of $20.5 billion, generating profits in the most recent quarter and over the trailing 12 months, and being based in the U.S.
The index is run by S&P Global, and it’s rebalanced quarterly. The index is weighted, which means larger stocks by market value have a greater representation.
These features result in an index that’s geared toward growth. Faster-growing companies will naturally have larger market caps and account for more of the index, and unprofitable companies won’t be included or will be replaced.
Buying an ETF that tracks the S&P 500 takes all of the guesswork out of investing. S&P 500 ETFs mimic the index’s components and weight, and by default, its performance. Investors get a large array of top growth companies without poring over financial statements or feeling the anxiety of picking and choosing, and you get instant diversification across classes and categories, minimizing risk. Plus, because it’s an ETF, it’s traded on an open market and is simple to buy and sell.
The most popular S&P 500 ETF is also the most popular ETF of any kind in the world. The Vanguard S&P 500 ETF (NYSEMKT: VOO) has $1.7 trillion in assets under management, and it has the lowest expense ratio, or how much you pay to Vanguard, of 0.03%.
Creating wealth over time
History shows that this method works. The S&P 500 gains much more often than it loses value, and over time, even including market crashes, it has steadily compounded and grown investors’ money. In fact, since 1990, it has delivered an annualized gain of almost 11%, which is outstanding.
