Financial gurus from Warren Buffett to Graham Stephan say investing in the S&P 500 is the best path to wealth for most people. However, with an average annual return of about 10% per year, can you really get rich investing in such a stable asset?
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In general, the answer is yes, but only if you’re patient. Consider the S&P returns over the past 10 years to illustrate the point. When you add it all up, just how much would you have now if you had invested $1,000 in an S&P 500 index fund 10 years ago? Here are some key takeaways:
- The S&P 500 is a market index that tracks the performance of 500 leading U.S. companies.
- You can get exposure to it by investing in stocks like VOO or SPY.
- Over the past 10 years, VOO has gone up by an average of 12.64% annually. SPY is just ahead at 12.69% annually.
- That means if you held each asset for 10 years, you’d be up 126.4% with VOO or 126.9% with SPY.
S&P 500 Investment Time Machine
Imagine you put $1,000 into either fund 10 years ago. You’d be up to roughly 126.4% — or $3,282 — from VOO and 126.9% — or $3,302 — from SPY. That’s not exactly wealthy, but it shows how you can more than triple your money by holding an asset with relatively low long-term risk.
The real wealth-building magic of the S&P 500 happens when you hold for even longer and continue investing in the fund as you do. High returns are great, but turning those into more profit is the difference between a savings account and a fruitful investment strategy.
For example, say you’re 35 and have $1,000 invested in VOO or SPY. Imagine you continue investing $250 into the fund every month for the next 30 years. At age 65, you’d end up with more than $500,000, assuming the S&P keeps up its approximate 10% annual growth. That number dips to around $100,000 if you hold cash in a savings account that yields 1% annually. This shows why investing in a broad market index such as the S&P 500 is so important to building wealth.
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Which S&P 500 Stock Should You Choose?
Consistently investing in the S&P 500 is a tried-and-true method for building long-term wealth. However, should you buy VOO, SPY or another fund if you’re ready to start doing that?
SPY averages annual returns of about 0.5% more than VOO. However, it has a higher management fee. You have to pay 0.09% of the amount you invest in SPY toward fees annually. That drops to just 0.03% for VOO.
These fees will eat away at some of the gains you make. That’s why investors generally say it’s smarter to invest in VOO than SPY. However, these fees are most important to people investing large amounts in the S&P 500.
If you plan on investing $1,000 for now, it’s most important to just get into the habit of buying an S&P fund consistently. If SPY is more convenient for you to own than VOO, don’t feel as though you need to change brokerages. It’s just something to consider as you continue investing in the S&P to build wealth.
Final Take To GO
The bottom line is that it is easy to look back and say “shoulda, coulda, woulda” when it comes to investing. If you can assess you finances today and put your money where it has potential to grow, future you will probably not regret it.
Kellan Jansen contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: How Much You’d Have If You Invested $1,000 in the S&P 500 10 Years Ago
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
