Investing in units of individual stocks can be a great way to earn impressive returns and build wealth. But that’s how it is only if you have the knowledge and are willing to put in the necessary time to make sound investments.
Not everyone enjoys the process of doing business research or tracking company performance. But if that’s not your cup of tea, you don’t want that to discourage you from putting your money into the stock market — especially not when there’s a simple solution.
If you hate picking stocks, this might be the investment for you
If you want to invest money so you can build wealth, but have no interest in researching different assets to invest in, you should seriously consider buying S&P 500 index fund.
Index funds track the performance of financial indices. When you invest in one, your money is spread across all the assets that make up the fund. If you buy an S&P 500 index fund, for example, your investment will give you exposure to about 500 of the largest US companies. Your single purchase of this fund will actually allow you to invest in businesses ranging from An apple and Amazon to Caterpillar and Charles Schwab to DISH Network and Dollar tree. You’re essentially betting on all the big businesses in America that are spread across all different industries.
Betting on American businesses has always paid off in the past, with the S&P 500 generating an average annual return of about 10% over time and never producing losses for anyone who has been consistently invested for at least 20 years.
Because of this index fund’s proven track record and the fact that investing in it provides immediate diversification, buying an S&P 500 fund greatly reduces the risk you take on while giving you the best chance to earn generous returns.
Why is the S&P 500 fund perfect for people who don’t like picking stocks?
The most obvious reason why an S&P 500 fund is a great choice for someone who is not an experienced investor is the fact that you can earn predictably good returns while minimizing risks. But there are other advantages.
There are several S&P 500 exchange-traded funds (ETFs) that you can invest in. They will all perform very similarly as they all seek to mimic the performance of the index. This means you don’t need to do a lot of research to invest your money. All you have to do is look at the fees each one charges and choose one. It takes little knowledge and almost no effort.
S&P 500 ETFs also charge very low fees because the investments are automatically selected and the fund is not actively managed. So you don’t have to worry about the invested costs eating into the returns. And you can usually invest in these funds without a lot of money — especially if you buy through a brokerage firm that allows you to buy fractional shares of ETFs.
All of this means that almost anyone – even people with zero investment knowledge – can start investing and have a high chance of success.
John Mackie, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Christie Bieber has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Amazon and Apple. The Motley Fool recommends Charles Schwab and recommends the following options: long March 2023 $120 Apple calls and short March 2023 $130 Apple calls. The Motley Fool has a disclosure policy.