The S&P 500 (SNPINDEX: ^GSPC) has historically been a fantastic way to compound wealth — generating annualized total returns of 9% to 10%. The proliferation of low-cost index funds and exchange-traded funds (ETFs) has made it easier than ever to invest in the S&P 500 without racking up high fees.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) — one of the largest S&P 500 index funds by net assets — has an expense ratio of just 0.03% — or 3 cents for every $100 invested. When I first began investing, it was normal to see flat fees per stock trade of around $5 to $10. So fees and expense ratios are no longer a major drag on returns for investors who regularly pour their savings into equities.
One issue with buying the S&P 500 is that it doesn’t have a high yield. Today’s top S&P 500 companies are growth stocks that have yields well below 1% or don’t pay dividends at all — a stark contrast to the days when the most valuable companies were oil and gas giants, industrials, or consumer staples behemoths with high yields.