Warren Buffett once said, “Successful investing takes time, discipline, and patience.” The stock market can create substantial wealth over extended periods, but there are no shortcuts to building wealth, and attempting to rush the process can have disastrous consequences.
That said, investing can be simple. Broadly diversified index funds are essentially readymade portfolios that allow investors to earn reasonable returns with minimal effort. They can serve as stand-alone investments, or they can supplement and de-risk portfolios of individual stocks by spreading capital across more companies.
In either case, here are two index funds (that have consistently made money) to buy now.
1. The Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF (VOO 1.92%) tracks 500 of the largest publicly traded U.S. companies. Its components consist of value stocks and growth stocks from every market sector, allowing investors to build a diversified portfolio that includes many of the most influential businesses in the world. The index fund covers about 80% of the U.S. stock market and more than 50% of the global stock market in terms of market capitalization.
The top five holdings in the Vanguard S&P 500 ETF are detailed below:
- Apple: 7.1%
- Microsoft: 6.5%
- Alphabet: 4.1%
- Amazon: 3.2%
- Nvidia: 2.9%
The Vanguard S&P 500 ETF has been a profitable investment over the past three- and five-year periods, and it returned a total of 200% over the last decade, or 11.6% annually. At that pace, $150 invested weekly would be worth $141,700 in one decade and $566,500 in two decades.
Finally, the Vanguard S&P 500 ETF bears a below-average expense ratio of 0.03%, meaning the annual fee on a $10,000 portfolio would be just $3. That makes this index fund a good option for virtually any investor who wants stock market exposure.
2. The Invesco S&P 500 Quality ETF
The Invesco S&P 500 Quality ETF (SPHQ 1.53%) tracks roughly 100 stocks in the S&P 500 deemed to be the highest-quality securities in the index. Whether or not a company qualifies for the fund depends on its return on equity, balance sheet accruals ratio, and financial leverage ratio, as explained below.
Compared to low-quality companies, a high-quality company would (1) produce higher returns on equity, meaning it would generate more earnings per unit of shareholder equity; (2) have a lower balance sheet accruals ratio, meaning its earnings would depend less on balance sheet accounting that is subject to estimation and manipulation; (3) have a lower financial leverage ratio, meaning it would have less debt per unit shareholder equity.
The top five holdings in the Invesco S&P 500 Quality ETF are detailed below:
- Nvidia: 6.1%
- Microsoft: 5.4%
- Alphabet: 5.2%
- Mastercard: 5.1%
- Apple: 4.9%
The Invesco S&P 500 Quality ETF has been a profitable investment over the last three- and five-year periods, and it returned 207% over the last decade, or 11.9% annually. At that pace, $150 invested weekly would be worth $144,000 in one decade and $587,300 in two decades.
Interestingly, the index fund outperformed the S&P 500 over the last decade, albeit narrowly, and it also exhibited less volatility. The proof is its 10-year beta of 0.92, meaning the index fund moved 92 basis points for every 100-basis-point movement in the S&P 500.
In short, the Invesco S&P 500 Quality ETF gives investors a shot at achieving market-beating returns while incurring below-average volatility. It is slightly more expensive than the Vanguard S&P 500 ETF, but it still bears a below-average expense ratio of 0.19%. In that context, this index fund is a good option for virtually any investor who wants stock market exposure.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Mastercard, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Mastercard, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.