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There’s one investment you might make in the new year that could set you up for long-term success. Read on to find out what it is.
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You might have different financial goals in mind for 2024. Maybe you’d like to boost your savings account balance so you’re better equipped to deal with unplanned expenses. And maybe you’d like to invest more of your money so you’re better positioned to meet long-term goals, like a comfortable retirement.
You’ll often hear that when it comes to investing, it’s important to maintain a diversified portfolio. And also, you don’t want to take on too much risk in your portfolio, so it’s often best to favor larger companies over smaller ones with less of a proven track record.
To be clear, it’s more than possible to do well by investing in smaller companies that trade publicly. And choosing a larger company does not by any means guarantee that you’re going to make money, and not lose money, over time.
But generally speaking, companies that are larger and have a proven track record are a less risky investment choice to consider. And so if you’re looking for a great investment in 2024, there’s one option that really gives the best of both worlds.
Buy shares of an S&P 500 ETF
ETFs, or exchange-traded funds, are funds that are composed of different investments. An S&P 500 ETF is an ETF that invests in the S&P 500 index — an index of the 500 largest publicly traded companies.
The beauty of investing in an S&P 500 ETF is that you get instant diversification, because you’re effectively investing in 500 different businesses without having to go out and purchase shares of 500 different stocks. Also, for a stock to be a part of the S&P 500, the company behind it has to be pretty large in nature. And again, while investing in large companies doesn’t guarantee great results, larger companies are generally considered to be less risky than smaller ones.
Now you should know that when analysts talk about the stock market’s performance, often, what they’re referring to is the performance of the S&P 500 index. And that index has, over the past 50 years, delivered an average annual return of 10%.
So, let’s say you invest $1,000 in an S&P 500 ETF in 2024. If your investment delivers that same return and you hold it for 40 years, you’re looking at turning that $1,000 into over $45,000.
Should you buy shares of individual companies instead?
One thing you should know about investing in S&P 500 ETFs is that doing so won’t help you beat the broad market — namely because you’re investing in the broad market. A number of individual companies have, over time, outperformed the S&P 500 index. And many are likely to continue doing so.
If your goal is to beat the market, then hand-picking individual stocks is a better way to get there than by putting money into S&P 500 ETFs. But if you’re happy with the idea of a 10% return over time, then taking the easier way out and sticking with S&P 500 ETFs may be the way to go. That way, you don’t have to do nearly the same amount of legwork, and you might, to some degree, help to minimize the risk you’re taking on.
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