Updated: Feb 10
According to Investopedia, "Index investing is a passive investment technique that attempts to generate returns similar to a broad market index. Investors use this buy-and-hold strategy to replicate the performance of a specific index—generally an equity or fixed-income index—by purchasing the component securities of the index, or investing in an index mutual fund or exchange traded fund (ETF) that itself closely tracks the underlying index."
S&P 500 is the best index in the world, and the return outperforms most fund managers and retail investors.
Investing in an ETF tracking S&P 500 index could be the best way for regular people to invest over a long period of time.
We have summarized what you can make by investing in S&P 500 index since its inception. The data source is from S&P 500 Total Returns by Year Since 1926 (slickcharts.com)
Assume you have invested only $10,000 each year to the S&P 500 index since inception, by now at 2022, you will have 1.7 Billion dollars in your account, which is 1790 times over your total invested capital. That's the power of index investing and compound returns.
We have just tested the recent 30 years until 2021, and the return is very promising.
Assume you invest $500 each month in VOO (most popular S&P 500 ETF) to your tax-free savings account (Roth IRA or TFSA) with dividend automatically reinvested, over 30 years from 1991 to 2021, you will get more than $1 million in your account. The total cost is only $180,000.
If you can help your children to invest this $500 each month to their account from 18 years old until they find a job, they can be a millionaire by 48 years old.
A small amount of investment plus the magic of compound interest can help everyone to achieve financial freedom earlier.