It doesn't take a lot of money to make a lot of money on your investments. If you give the stock market enough time, compound interest will take care of itself. But what if you only had $500 to start your investment portfolio?
Index funds, which are designed to track specific market indexes, may be a great option to start. These funds are buckets of individual stocks that trade under a single ticker symbol.
of Vanguard S&P 500 ETF (VOO -0.69%) Trucks, you guessed it. S&P500.
Here are three reasons why investors should invest at least their first $500 in this solid index fund.
1. Warren Buffett's choice
Warren Buffett is known for his legendary career as a stock picker and CEO. berkshire hathaway. He owns a $365 billion stock portfolio of dozens of companies within Berkshire.
Despite his immense investing talent, Buffett only has two index funds in his portfolio. Both happen to track the S&P 500, which is no coincidence.
According to Buffett, as he said at Berkshire's 2020 annual shareholder meeting, owning an S&P 500 index fund is the best thing most investors can do. One of his two index funds in Berkshire's portfolio is the Vanguard S&P 500 ETF.
2. Track the world's best index
Buffett's fascination with the S&P 500 is fully justified. The index itself represents approximately 500 of America's most prominent companies.
The United States is the world's largest economy, so joining the S&P 500 is a badge of honor that places a company among the world's best. It is difficult to argue against the wealth that our capitalist system has created.
Markets can be volatile, reflecting the sentiments of buyers and sellers at the time, but over the long term, the S&P 500 has always rebounded and set new highs. That's still the case today, with the index currently at an all-time high.
^SPX data by YCharts.
The Vanguard S&P 500 ETF lets you hitch your wagon to this financial horse for virtually nothing in return. All funds have an expense ratio to compensate the fund's operator, but this fund's expense ratio is just 0.03%, or less than $0.02 for every $500 invested.
3. Diversify instantly
Perhaps the best thing about a fund like the Vanguard S&P 500 ETF is its diversification. It is difficult to buy many stocks for $500, but if he buys one share of this fund, he can immediately learn about all the companies included in the S&P 500. That means you own a small portion and a few hundred shares of all the “Magnificent Seven” stocks. more!
You might want to buy one stock for $500, but what happens if something happens to that one company? The S&P 500 has proven resilient since its inception, In the absence of economic scenarios, stock prices will remain the same 10, 20, or 50 years from now.
And your money will continue to work for you. I can't think of a better use of $500 than buying a fund like the Vanguard S&P 500 ETF.
Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETFs. The Motley Fool has a disclosure policy.
