Millions of investors have watched their savings dwindle over the past year as stock prices tumble. With concerns that we could be headed toward a recession in 2023, it’s normal to feel nervous about investing right now.
While it can be tempting to stop investing or even pull your money out of the market, those strategies are often costly.
It’s safer to simply ride out the storm and wait for stock prices to recover. But you’ll need the right investments to pull off this tactic successfully. Fortunately, there’s one ETF that can not only protect your savings, but potentially make you a millionaire, too.
The right ETF to keep your money safe
No investment is immune to volatility, but some have a better chance of recovering from downturns than others. And one of the safest ETFs out there is the S&P 500 ETF.
An S&P 500 ETF — such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) — is a fund that aims to mirror the performance of the S&P 500 index itself. Each fund includes stocks from 500 of the largest companies in the U.S., such as Amazon, Apple, and Microsoft.
When you own an S&P 500 ETF, you have a small stake in all 500 of the companies in the index. Not only does that provide instant diversification (which limits your risk), but because these stocks are some of the strongest in the world, they’re also extremely likely to recover from downturns.
To be clear, your investments could still take a hit in the short term. In fact, over the past year, the S&P 500 has fallen by roughly 13%. But over the last 20 years, the index has earned returns of more than 250% — and that’s despite multiple major downturns in that time.
In short, no investment can avoid volatility entirely. But S&P 500 ETFs are far more likely to rebound from even the most severe crashes, bear markets, and recessions. Regardless of what happens in the coming weeks or months, the S&P 500 will be just fine over the long run.
Maximizing your returns
S&P 500 ETFs are one of the safest types of investments out there, but they can also help you make a lot of money over time.
For example, the SPDR S&P 500 ETF Trust has earned an average return of around 9.5% per year since its inception in 1993 — which is in line with the index’s historical average return of around 10% per year. In other words, all the annual highs and lows have averaged out to around 10% per year over time.
If you were to invest, say, $200 per month while earning a 10% average annual return, here’s approximately how much you’d accumulate over time:
|Number of Years||Total Savings|
The sooner you begin investing, the easier it will be to earn hundreds of thousands of dollars or more. Even if you can’t afford to invest much per month, the more time you give your money to grow, the faster it will snowball.
Also, while waiting decades to save a substantial amount of money is tough, keep in mind that S&P 500 ETFs are passive investments. You don’t need to do any research on individual stocks, and you can still build wealth even if know next to nothing about the stock market.
There’s not necessarily a right or wrong way to invest. But if you want to limit your risk, an S&P 500 ETF could be a smart option to protect your savings while still generating long-term wealth.
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John Mackey, former 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.