Financial gurus from Warren Buffett to Graham Stephan say investing in the S&P 500 is the best path to wealth for most people. But 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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The answer is yes, but only if you’re patient. Let’s consider the S&P returns over the past 10 years to illustrate the point.
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How Much You’d Have If You Invested $1,000 in the S&P 500 10 Years Ago
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.
So imagine you put $1,000 into either fund 10 years ago. You’d be up to roughly $3,282 with VOO 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.
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. But if you’re ready to start doing that, should you buy VOO, SPY or another fund?
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.
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This article originally appeared on GOBankingRates.com: If You Had Invested $1,000 in an S&P 500 Index Fund 10 Years Ago, Here’s How Much Money You’d Have Today
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