Want $1 Million in Retirement? 1 Simple Index Fund to Buy and Hold for Decades.
Key Points
Planning for retirement may sometimes be a complicated and difficult task because of the many choices available. You might look ahead to locking in returns from a long-term investment such as a 401(k) plan. And you might wonder whether you should complement that by also investing in stocks or other investment securities separately -- or whether you should turn to real estate. And the list goes on.
Any of those things could be a valuable piece in your retirement portfolio and may greatly grow your wealth. But one investment in particular might be the easiest and most efficacious of the bunch -- and its past performance has shown it could grow a small initial investment, if contributed to regularly -- into $1 million over the long run.
I'm talking about an index fund that allows you to bet on the top companies driving the day's economy. Let's check it out.
Reflecting the S&P 500's performance
This fantastic fund that you can count on over time is the Vanguard S&P 500 ETF (NYSEMKT: VOO) . This exchange-traded fund mirrors the performance of the S&P 500 index, a benchmark that has delivered a 10% average annual gain since the late 1950s.
The great thing about ETFs is they allow you, with just one simple purchase, to immediately invest in many companies according to a particular theme -- from industry to investment style. They also, such as in this case, may offer you exposure to a major benchmark. And in all of these cases, they provide you with instant diversification. This lowers your risk because instead of depending on just a few stocks, you're exposed to many players -- so if certain ones go through tough times, others may compensate.
Now you might be wondering: How do I buy an ETF? Is it complicated or involve fees? The good news is it's easy and cheap, as long as you go for one with a low expense ratio. ETFs trade daily on the market just like a stock, making it a snap to buy or sell them. They come with fees, reflected as expense ratios, but if you choose an ETF with a ratio of less than 1% you won't have to worry about these fees hurting your returns.
The Vanguard S&P 500 ETF, with an expense ratio of only 0.03%, clearly is a reasonably priced option. Now, let's talk about why this particular instrument makes a fantastic addition to your retirement portfolio. The S&P 500 always has advanced over the long run, thanks to its composition of strong well-established industry leaders. So, if you invest for many years, it's extremely likely you'll score a win, and if the index continues at an average annual gain of 10%, your victory could be quite significant.