You’ll often hear that a diverse investment portfolio could be the ticket to growing wealth. Plus, the more diverse your portfolio, the better protection you buy yourself in the face of market volatility.
But assembling a diverse portfolio is easier said than done when you don’t know the first thing about picking stocks. The good news, though, is that you don’t need to be an expert to put together the right investment mix. All you really need to do is focus on one specific type of investment.
Get broad market exposure without breaking a sweat
Some people build diverse portfolios by researching companies individually and then buying up several dozen individual stocks across a variety of market segments (for example, some tech stocks, some energy stocks, and some healthcare stocks). That’s a strategy that may seem overwhelming to you if you have no idea what you’re doing.
But fear not, because if you don’t know much about investing, index funds can come to the rescue — specifically, S&P 500 index funds.
Index funds are passively managed funds whose goal is to perform as well as the market indexes they’re associated with. Meanwhile, the S&P 500 is one specific index that’s comprised of the 500 largest publicly traded stocks today.
The benefit of investing in S&P 500 index funds is that you get immediate diversification without having to do a lot of research. Or, to put it another way, if you buy shares of an S&P 500 index fund, you’ll effectively get to own 500 different stocks without actually having to go out and buy every single one.
Of course, this isn’t to say that S&P 500 index funds carry no risk. When the broad market experiences a crash, the value of your portfolio is apt to decline.
But one thing you should know about the S&P 500 is that it has a long history of recovering from downturns and rewarding investors who stick with it for the long haul. As such, if you load up on S&P 500 index funds today and hold them for 20 or 30 years, you might accumulate enough wealth to meet your various financial goals, whether they involve retiring early or buying a second home.
Now you may be wondering if there’s a downside to buying S&P 500 index funds, and, well, there is. In addition to the general risk that comes with owning stocks, one negative you might grapple with is having no say over your investments. If there’s a company that’s part of the S&P 500 that you specifically don’t want to own because it doesn’t align with your values as an investor, well, you unfortunately don’t get that choice.
But if you can get past that, you may find that S&P 500 index funds do a great job of helping you attain a nice level of diversity in your portfolio. And if you’re brand-new to investing or don’t have the time or patience to learn more about how to choose stocks, then they’re definitely an option worth looking into.
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