i know my title makes a big promise.The “definitive guide” to anything can be several books that offer deep dives into every strategy and idea.
But when it comes to building sustainable wealth in the stock market, I work with a really short list of strategies that have been proven to deliver strong results over time. You don’t have to find the “next big thing” before anyone else, and you don’t need a second mortgage borrow to fund your share purchase plans.
It’s all about timing, patience and unwavering investment habits, which is only truer when dealing with rock solid assets like Vanguard S&P 500 ETF(NYSEMKT: FLIGHT). In a perfect world, you could set up an automatic dollar cost averaging plan, forget about it for a few decades, and reap the benefits when it’s time to collect the money. required minimum distributions (RMDs) support your golden years.
Making consistent investments over time serves several important purposes.
The basic idea is to make more of your money over time. I don’t know your personal budget, but let’s imagine that you can afford to send $100 to your stockbroker every month. That’s $12,000 for a decade, but it’s given in smaller chunks to make the budget burden easier to bear.
By allowing that cash to generate stock returns over the long term, your wealth will grow very consistently S&P 500:(SNPINDEX: ^GSPC) the market tracking index gave an average total return — including reinvested dividend payments, 13.7% annually since 1995.
Back then, $100 invested in the S&P 500 index fund was worth about $362 today. Add another $358 for the next month’s investment, and you get the drift. A large number of small investments can add up to huge amounts of value over time.
I can’t predict the future to the nearest double digit, but I can look back over the long term to see what might happen next.For example, investing $100 a month in the Vanguard S&P 500 ETF over the past 10 years has is a total investment of $12,000. But the resulting Vanguard fund position would be worth $26,540 so far. That’s a 121% market gain, and these gains tend to increase over time.
So there’s real value in investing very little over the long term.Believe it or not, that’s how investing geniuses like Warren Buffett built their fortunes, even though they started out with bigger budgets.
The next trick is to take the emotion out of the investment process. You don’t have to try to time the market, and you don’t have to look for the biggest winners in any particular economy. By making the same investment every month, regardless of the stock or fund price and other variables, you get more shares when they do. are cheap, and less so when they are expensive.This effect smooths out the impact of price jumps and falls in value, adding consistent value to your portfolio with each trade.
It’s even better if you automate this process, taking the human element out of the stock-buying process If your employer doesn’t offer that pension option, most stockbrokers can do something similar.
Charles Schwab offers the Schwab Personalized Indexing service, which automates the process of withdrawing money from your bank account and investing it each month in the Vanguard S&P 500 ETF.
It’s a two-part process Robinhood. First, you set up a monthly cash transfer to fund the brokerage account, then you can set up a recurring investment to buy some Vanguard fund shares each month.
E* Trade by: Morgan Stanley has a similar two-step approach, but it also provides an “auto-invest” service that lets you choose your fund (no stocks), investment amount, time between trades, and funding account all in one package.
These are the brokers I have access to. Other platforms may use different names, but they should all offer some combination of automated fund transfers and zero-click investment programs. And that’s the best way to manage a dollar-cost averaging system.
Why am I using the Vanguard S&P 500 ETF in these examples? Because it’s really hard to go wrong with one or the other S&P 500 ETF SPDR S&P 500 Trust(NYSE: SPY) or iShares Core S&P 500 ETF(NYSEMKT: IVV) the means. These are the largest and most popular exchange-traded funds (ETFs) on the market, and they all track the diversified S&P 500 index with minimal management fees.I prefer the Vanguard option mostly out of respect for Vanguard founder Jack Bogle, but the other two are equally good choices.
S&P 500 trackers won’t beat the market because they simply reflect Wall Street’s average returns, but that’s good enough for most people. And you can try other well-known funds from household names with similar results names, low fees, and large baskets of high-quality stocks, you’ll be fine.Again, the most important thing is to put your cash to work, and many ETFs work great will do in the long run.
So there you have it. There are no big secrets here, just some very simple concepts that anyone can use. There may be bumps and potholes on the road ahead, but the market is quite resilient and has an upward trend in the long term. Keep it simple, make it automatic, forget about your investment plan for years and years, and maybe thank me with a fruit basket in 30 or 40 years. Exponential growth really does work wonders over long periods of time.
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Charles Schwab is an advertising partner at Motley Fool Money. Anders Bylund has positions in the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends the Vanguard S&P 500 ETF. The Motley Fool recommends Charles Schwab and offers the following options: December 2024 $67.50 short calls on Charles Schwab. The spotted fool has a disclosure policy.
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