If you’re looking to invest $1,000 in the stock market, it’s hard not to like the Vanguard S&P 500 ETF (VOO +0.83%). The exchange-traded fund (ETF) tracks the S&P 500, a bucket of 500 prominent U.S. companies. On top of that, you can invest as little as a dollar, the fund charges very low fees, and Vanguard is an iconic and trusted name in the investment community.
Unfortunately, reading the news headlines is stressful these days. People are tossing around frightening words like “recession” or “bubble.” Naturally, the fear of losing money can be paralyzing. But history suggests that investing in VOO will likely work out well for you, especially if you have time and patience.
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Why the S&P 500 wins over time
The S&P 500 index is famous for a reason: It might be the most proven wealth-building machine humankind has ever seen. The index is an evolving basket of America’s best companies. It weights companies by market cap, so the better a stock performs, the larger it becomes in the index. The index has generated an annualized return of 10.33% since 1957. In other words, your money would double about every seven years.
Of course, that’s annualized, so it smooths out the spikes and dips, and to be clear, it’s not always a smooth ride. The stock market is a collective of human emotions, so things can go to extremes — in both directions, now and then. There have been outright market crashes throughout history, including the Great Depression in 1929 and the COVID-19 pandemic nearly a century later.
History shows that time beats timing
Investing right before the market plunges might be an investor’s worst nightmare. However, history shows that time and patience can overcome even the worst timing. Data compiled by BlackRock shows that investors buying into the U.S. stock market right before the worst drawdowns in modern history have eventually made money, every single time.
Today’s Change
(0.83%) $5.66
Current Price
$687.87
Key Data Points
AUM
$1.7T
Dividend Yield
1.07%
Expense Ratio
0.03%
Top Holdings
NVDA
7.51%
AAPL
6.59%
MSFT
4.30%
For example, investing right before the stock market tumbled 86% during the Great Depression still produced a 46% return after 20 years. That’s the worst scenario on record. If you invested just before the market fell 34% during the Black Monday market crash in 1987, you would have recovered after a single year. You would have made 68% after five years, and 338% after a decade.
That doesn’t mean that the market will always recover. That’s the inherent risk that’s part of investing, the cost of playing the game. Still, a century of history is a pretty good indicator that, as long as the U.S. economy continues to grow over the long term, the Vanguard S&P 500 ETF will likely continue to deliver for your portfolio. It just might take some time.
