Becoming a millionaire may sound like an ambitious goal. But you don’t necessarily need to find the next hot company to get there. For many investors, consistently investing in a low-cost S&P 500 (SNPINDEX: ^GSPC) fund over decades can be a surprisingly effective wealth-building strategy.
One popular option is the Vanguard S&P 500 ETF (NYSEMKT: VOO), which offers broad exposure to the U.S. stock market while charging an expense ratio of just 0.03%.
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Like any investment, VOO isn’t a guaranteed path to seven figures. But if you have a long time horizon and stay disciplined, it could play a major role in helping you build lasting wealth.
Why the Vanguard S&P 500 ETF has millionaire-making potential
The Vanguard S&P 500 ETF tracks the performance of the S&P 500, an index made up of roughly 500 of the largest publicly traded companies in the U.S. By purchasing a single share of the fund, you’re putting your money into companies spanning technology, healthcare, financial services, consumer goods, industrials, and many other sectors.
That diversification is one of the fund’s biggest strengths. Instead of betting on a handful of stocks, you’re investing in a wide range of companies and industries.
It also allows you to take a “hands-off” approach to investing. Because you’re exposed to so many sectors, you don’t have to constantly rebalance your portfolio like you would with individual stocks.
Plus, like many Vanguard funds, the Vanguard S&P 500 ETF has an extremely low expense ratio of 0.03%. That means you’ll pay just $3 per $10,000 invested. Keeping fees to a minimum allows more of your money to remain invested and benefit from compounded growth over time.
But the key to becoming a millionaire with the Vanguard S&P 500 ETF is consistency. If you buy shares regularly and/or hold shares for a long time, you can put yourself in a stronger position to build wealth.
In fact, since its inception, the Vanguard S&P 500 ETF has delivered an average yearly 15% return . Even if we cut that in half, if you invest $500 a month in the fund over 30 years, you could end up with $1.36 million.
What to know before investing
While the Vanguard S&P 500 ETF could make you very wealthy over time, it’s important to understand the drawbacks. The stock market can be volatile. And right now, the S&P 500 is very tech-heavy. A crash in that sector could cause your portfolio to lose value if you own shares of the Vanguard S&P 500 ETF.