Why this ETF is all you need to grow rich.
If you've got $500, you could invest it all in a single stock. But a better move is to buy an exchange-traded fund (ETF) that lets you invest your money across hundreds, or even thousands, of stocks -- all in just one purchase.
The Vanguard S&P 500 ETF (VOO -0.74%) is one of the most reliable investments on the planet, and it has dirt cheap fees. Read on to learn how a $500 investment in this top S&P 500 index fund could send your net worth skyrocketing.
Image source: Getty Images.
What is the Vanguard S&P 500 ETF?
The Vanguard S&P 500 ETF, or VOO, is a fund that tracks the S&P 500 index, a collection of 500 of the largest and most profitable publicly traded companies in the U.S. The fund's top five holdings are as follows:
1. Microsoft(MSFT -0.82%)
2. Apple(AAPL -2.11%)
3. Nvidia(NVDA 9.32%)
4. Amazon.com(AMZN -1.14%)
5. Meta Platforms Class "A" shares (META -0.43%)
With this fund, or any index-tracking fund for that matter, the goal is to replicate the underlying index as closely as possible. So if the S&P 500 index notched returns of 20%, you'd expect the VOO to deliver about the same returns, minus fees. But since the VOO's ETF expense ratio is an ultra-low 0.03%, meaning just $3 of a $1,000 investment goes toward fees, the fund's returns are almost identical to those of the S&P 500 index.
How to grow $500 into $1 million
If you starting investment is $500 and you can budget an additional $500 each month, your investment could grow to $1 million after about 30 years. Historically, the S&P 500's average annual returns are around 10%.
Returns are significantly higher in some years, while the index has negative returns in some year. But even after prolonged downturns, the S&P 500 index has an incredible track record of bouncing back.
Here's how a $500 monthly investment could grow over time, assuming 10% average annual returns.
| Time | Growth of $500 Monthly Investment |
|---|---|
| After 5 years | $39,391 |
| After 10 years | $102,025 |
| After 20 years | $365,367 |
| After 30 years | $1,048,371 |
Data source: author.
Investing in the VOO isn't going to make you a millionaire overnight. But if you consistently invest over a long period, earning market returns allows your money to compound into serious wealth thanks to the power of compounding.
It's essential to stay the course even during a bear market, when you may be tempted to put your investments on pause -- or worse yet, cash out. Most investors fare best when they practice dollar-cost averaging, a strategy where you invest a set amount on schedule, regardless of whether the market is up or down. Investing $500 in the VOO at the beginning of each month is an example of dollar-cost averaging.
If you want to supercharge your returns on Vanguard's S&P 500 ETF, consider opening a Roth IRA to buy your shares. You won't get an upfront tax break, but if you follow the rules, all withdrawals will be tax-free in retirement. Given the power of those compound earnings, investing in the VOO through your Roth IRA could lead to substantial tax-free wealth in the future.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Robin Hartill has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
