Generating income can be a daunting task. You go to work, pay your bills, and see what is left at the end of the day or the month's end. You hope it is enough to buy a nice meal or a beer at your favorite bar.
Investing doesn’t have to be challenging to figure out. There are a million different stocks or funds to choose from, and the anxiety of not losing money keeps people from investing $1. It is understandable. You work so many hours, and the thought of losing your hard-earned cash is just not a thought you want in your head. You want to stash in that bank account and earn that 4.5%. Easy peasy.
I have news for you. There are several ways to invest quickly, and the best part is that Warren Buffett, the greatest investor of all time, believes that everyone should invest this way if they do not know what they are doing. That is investing in a simple S&P 500 index fund or ETF.
Maximizing Money Through ETFs
An ETF is an exchange-traded fund. It is a fund comprised of different stocks or bonds, like a mutual fund, that can be traded on the open market like a stock. There are many types of these ETFs. Some are built for growth, some are just for dividends, and some can cover the entire market, like VTI (Vanguard Total Stock Market).
The one Warren Buffett likes is either SPY or VOO. These are two ETFs that track the S&P 500. With this fund, you do not need to pick a winning stock. The fund is comprised of the top 500 stocks in the U.S. stock market. When some rise, others will fall, but you will have some of the best companies in the U.S.A. helping you earn money.
Buffett likes these two ETFs so much that his portfolio holds a small percentage of these ETFs. If he is doing it, it is also a good idea to copy him. He was so convinced that it would work that he bet with some hedge fund managers in 2008. A $1 million bet that he eventually won. Over a ten-year period, the ETFs went up by 126% while the hedge funds went up by 36%.
The Power of Compounding Interest
At the beginning, I said taking $10 a day, which is about $300 a month could turn into $800,000. The way this works is compounding interest. As the fund grows over time the interest will help it snowball to become bigger over time.
If you were to invest just $300 a month for 20 years, that is $72,000 invested in total, and the average rate of return of the S&P 500 is about 10%, you would have a total of $206,190. (These numbers could be lower or higher in the future). If you just add ten more years (invested $108,000), that money will be worth now $592,178. It is not $800,000 yet, but if you invest an additional three years, that money will rise to $800,100 in 33 years of investing $10 a day. That is a total of $118,800 you invested, and now it is worth over $800,000.
Final Thoughts:
Investing in the S&P 500 can be a fantastic investment method. It is not a difficult decision to make which stock to pick; you will be choosing the top 500 in the U.S.A. The hard part is patience. In 33 years, you will watch that investment go on a roller coaster. If you can set it up automatically and forget about it, you may be a millionaire one day. So what are you waiting for? Can you save $10 a day? Can you start that investment journey? It takes just one step to change your financial future.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
