Investing in shares of individual stocks can be a great way to earn impressive investment returns and build wealth. But this is the case only with if you have the knowledge and are willing to put in the time needed to make sound investments.
Not everyone enjoys the process of researching businesses or keeping tabs on how companies are performing. 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 a S&P 500 index fund.
Index funds follow 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 that one fund will actually allow you to invest in businesses ranging from Apple AND Amazon to caterpillar AND Charles Schwab to DISH network AND Dollar tree. You will basically be making a bet on all the big businesses in America that are spread across all different industries.
Bets on American businesses have always paid off in the past, with the S&P 500 producing average annual returns of about 10% over time and never producing losses for anyone who has remained consistently invested for at least 20 years.
Because of this index fund’s proven track record and the fact that investing in it offers instant diversification, buying an S&P 500 fund significantly reduces the risk you’re taking on while giving you the best chance of earning a generous return .
Why is an S&P 500 fund ideal for people who don’t like picking stocks?
The most obvious reason that an S&P 500 fund is an excellent choice for someone who is not a skilled investor is the fact that you can earn good predictable returns while minimizing risks. But there are other benefits as well.
There are several S&P 500 exchange-traded funds (ETFs) out there that you can invest in. They will all perform very similarly as they all aim 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 take a look at the fees charged by each and choose one. Little knowledge required and almost no effort involved.
S&P 500 ETFs also pay very low fees, since investments are automatically selected and the fund is not actively managed. So you don’t need to worry about investment costs in return. And you can usually invest in these funds without much 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 great chance of success.
John Mackey, 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. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in 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.