Invest in Two Index ETFs with a $500 Budget for Long-term Holding
Investing in stocks can be a complex affair. With earnings, cash flow, balance sheets, and competitive threats to consider, it's no wonder many individuals find the process daunting. Professional investors, who have teams of analysts and years of experience, still struggle to outperform the market over the long run.
This is why I strongly suggest new investors consider exchange-traded funds (ETFs) as a starting point. One particular type of ETF that is worth considering is the index fund. Two great index ETFs that investors can buy and hold indefinitely are the Vanguard S&P 500 ETF and the Invesco QQQ ETF.
The Vanguard S&P 500 ETF
When discussing the stock market's performance, the media often refers to the S&P 500. This index is made up of the 500 largest companies traded in the US. The larger a company's market cap (the size calculated by multiplying its number of shares outstanding by its stock price), the more significant its position in the index.
Investment professionals who run actively managed funds continually try to outperform the S&P 500, but they often fail. Over the past ten years, only 10% of US fund managers were able to beat their benchmark indices, as of June 2024.
This is why investing in an ETF that tracks the S&P 500 is a smart move. One of the best options is the Vanguard S&P 500 ETF (VOO). With an expense ratio of just 0.03%, this ETF gives investors instant diversification across sectors in established large-cap companies. Its largest sector is technology, representing more than 30% of its portfolio. Top holdings, as of November 2024, include Apple, Nvidia, Microsoft, Amazon, and Alphabet.
The Vanguard S&P 500 ETF boasts an impressive track record. In the past two years, it has produced a total return, including dividends, of 25% or more, and in three out of four years. Its average annual return over the past decade, as of 2024, is 13.1%, amounting to a 241% cumulative return on a $500 investment made ten years ago.
Invesco QQQ ETF
If technology is your thing, the Invesco QQQ ETF (QQQ) could be an excellent long-term investment. This ETF tracks the Nasdaq-100 index, which constitutes the 100 largest stocks on the Nasdaq Stock Exchange. As of September 2024, about 60% of its holdings were in the technology sector.
The Invesco QQQ ETF has outperformed the market over time. In 2024, it generated a 25.6% return, and over the past decade, its cumulative return has been 435.9%, more than double that of the S&P 500 and the Vanguard S&P 500 ETF.
Regardless of which ETF you choose, the key is to invest consistently using a dollar-cost averaging strategy. This means putting money into the ETFs on a regular basis, whether the market is up or down. As little as $50 a month can contribute to your long-term wealth.
- To make informed investing decisions, many individuals spend considerable time scouring financial data, especially in 2024, keeping an eye on projections related to their potential investments.
- One effective method for new investors to start their journey in the stock market is by investing in exchange-traded funds (ETFs), with index funds being a particularly appealing option.
- When it comes to long-term investments, professionals often recommend considering ETFs that track well-known indices, such as the Vanguard S&P 500 ETF, which has a strong track record of outperforming some actively managed funds.
- As investors seek opportunities to diversify their portfolios, they may also consider ETFs like the Invesco QQQ ETF, which tracks the Nasdaq-100 index, focusing on tech companies, and has delivered impressive returns over the past decade.
