As we head into 2023, now is the time to be thinking about your investing strategy. The past year has been a rough one for the stock market, but there are more promising times ahead.
While nobody knows for certain what will happen over the next few months, a bull market is eventually coming. The market has recovered from every downturn it’s faced so far, and it will rebound from this one, too.
Right now, then, is the best time to start preparing for the upswing. The investors who buy during the market’s low points are well-positioned to see significant returns when the market bounces back. And there’s one ETF, in particular, you might want to stock up on: the Vanguard S&P 500 ETF (NYSEMKT: VOO).
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Bear and bull facing each other.
Is now really the right time to invest?
It can be daunting to invest when the market is in a slump. After all, when stock prices are falling, it can feel like you’re throwing your money away.
Load Error
Historically, though, those who invested during downturns went on to earn the most when the market rebounded. Also, because the market is essentially on sale right now, you can load up on quality investments for a fraction of the cost.
The key is to keep a long-term outlook. Nobody knows when this downturn will give way to a bull market, but it will happen eventually. By investing now and keeping your money in the market for the next several years (if not decades), you could potentially make a lot of money.
Why invest in an S&P 500 ETF
It’s also critical to choose the right investments, as not all stocks will recover from a market downturn or recession. But an S&P 500 ETF — like the Vanguard S&P 500 ETF — can limit your risk substantially.
An S&P 500 ETF is a fund that contains stocks from 500 of the largest corporations in the U.S., including big names like Amazon, Apple, and Microsoft. In other words, this ETF only includes the best of the best, and these companies are far more likely to rebound from a market downturn.
If you’re nervous about investing right now, an S&P 500 ETF can be a safer option. While there are never any guarantees when it comes to the stock market, as long as you hold your investments for the long term, it’s tough to lose money with this type of fund.
Also, this ETF can be a smart choice for those who want a low-maintenance investment. You’ll never need to research individual stocks or decide when to buy or sell with this fund. All you have to do is invest consistently and give your money time to grow.
How much can you earn with an S&P 500 ETF?
Aside from being a relatively safe investment, the S&P 500 ETF also packs a punch — and it can help you make a lot of money over time. Since its inception, this ETF has earned an average rate of return of nearly 13% per year. That may be a little higher than usual, simply because this fund was established in 2010 and didn’t experience the Great Recession. Historically, the S&P 500 has earned average returns of around 10% per year.
Still, those returns can go a long way over time. Say, for example, you’re investing $200 per month in this ETF while earning a 10% average annual return. Here’s approximately how much you can earn over time, depending on how many years you continue to invest:
| Number of Years | Total Savings |
|---|---|
| 10 | $38,000 |
| 20 | $137,000 |
| 25 | $236,000 |
| 30 | $395,000 |
| 35 | $650,000 |
| 40 | $1,062,000 |
Source: Author’s calculations via Investor.gov
The more you invest each month and the longer you allow your money to grow, the more you can potentially earn.
In addition, the Vanguard S&P 500 ETF has an expense ratio of just 0.03%, which is one of the lowest among ETFs. Fees can take a significant bite out of your earnings, and a lower expense ratio could save you tens of thousands of dollars over time.
If that isn’t enough to convince you, the Vanguard S&P 500 ETF is also one of only two ETFs owned by Warren Buffett, who has a long history of choosing winning investments, so in some cases, it could pay to follow his lead.
The upcoming months may be uncertain for the stock market, but things will get better. By investing in the right places now, you’ll be ready to take advantage of the inevitable upswing.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Katie Brockman has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Amazon.com, Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.