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Putting $1,000 into any investment is a significant commitment, with the obvious goal of maximizing your return and minimizing your losses. A great way to do this is with a exchange traded fund (ETF), which allows you to buy shares as you would a stock and can be bought with small amounts of money.
If you have $1,000 to invest right now, there are some very good reasons why that money should go into an ETF that tracks the S&P 500. Here’s why and which S&P 500 ETF is one of the best to own.
Billionaire investor and CEO of Berkshire Hathaway Warren Buffett has just two S&P 500 ETFs in his firm’s $325 billion investment portfolio, and the largest is the Vanguard S&P 500 ETF (NYSEMKT: VOL). Buffett’s firm currently owns 43,000 shares of the Vanguard S&P 500 ETF, an admittedly small position compared to his other holdings, but he has made his endorsement of funds that track the S&P 500 abundantly clear.
“In my view, for most people, the best thing to do is to own the S&P 500 index fund,” Buffett said at Berkshire Hathaway’s 2020 annual meeting.
Buffett also said at Berkshire’s 2013 annual meeting that almost all of the investment assets he will leave to his wife will be in an index fund when she dies. He said: “My advice to the trustee couldn’t be simpler: Put 90% of the money in a very low-cost S&P 500 index fund. (I suggest Vanguard).”
Index funds have become a popular investment vehicle because they are hard to beat. The Vanguard S&P 500 ETF is passively managed, meaning the money invested in the fund is used to buy shares of companies in the S&P 500 index without trying to focus on picking specific winners.
Not only is this easier than trying to figure out which stocks will beat the market, but this strategy usually results in better returns. Search from Morningstar shows that only 29% of actively managed funds outperformed passive index peers over the past decade.
if a fund is “passively managed”, you may think that you will not be able to make significant gains, but this is not true. The Vanguard S&P 500 ETF has had a total return of 257% over the past decade.
Another great advantage of this particular ETF is that it has a very low price expense report commission of only 0.03%. That means if you invest $1,000, you’ll pay just $0.30 in fees, and $10,000 invested in the fund will cost you just $3.
The S&P 500 has had a historical average annual rate of return of 10.1% since 1957. Some years will be higher and some years will be lower, of course. Also, these returns do not take inflation into account.
