The Best Index ETF to Invest $1,000 in Right Now

While the market still sits near all-time highs, it retreated a bit in November. Many stocks were severely punished this earnings season for what would generally be considered small missteps, which demonstrates how difficult it can be to invest in individual stocks. Meanwhile, several previously hot sectors have fallen out of favor, including software-as-a-service (SaaS) and restaurant stocks, to name just two.

This may leave some investors wondering what they should do right now. For me, investing in an index exchange-traded fund (ETF) like the Vanguard S&P 500 ETF (VOO +0.23%) is still the best move for most investors over the long term. However, that’s just half the story.

You don’t just want to invest in the ETF and forget it. Instead, you want to employ what is known as a dollar-cost averaging strategy. This is where you invest a set amount each month over a long period of time. $1,000 can be a great starting point, and if you use this strategy, it can help you build real wealth over time.

For example, if you invest $1,000 a month for the next 30 years and get an average annual return of 12%, you’d finish that period with a whopping $3 million. That’s not too shabby for what amounts to putting in only $12,000 a year, or $360,000 over that 30-year stretch.

Now the key remains to stick to the strategy through both good markets and bad. The temptation with the market at current levels could be to wait for a pullback, but those don’t often come when you expect them. According to analysts at J.P. Morgan, the market hitting all-time highs isn’t that uncommon, as it happens on about 7% of all trading days, and a third of those times it never trades lower.

At the same time, you also don’t want to shy away from the market when it keeps trading lower. JP Morgan also found that the market often has its best-performing days soon after some of the worst days, and if you missed out on the market’s 10 best days over the past 20 years, your overall returns would be cut nearly in half. That’s why it’s best not to veer off the path and try to time the market.

The Vanguard S&P 500 ETF

Meanwhile, if you can invest in just one ETF, the Vanguard S&P 500 ETF would still be my choice. The ETF tracks the performance of the S&P 500, which is made up of the 500 largest U.S. companies. It is a combination of growth and value stocks, although at the moment its largest holdings certainly lean toward growth names.

What I like best about the S&P is that it is a market capitalization (market cap)-weighted index. This means that the larger a stock is by market cap (shares price multiplied by shares outstanding), the larger a percentage of the index it can become over time.

Yet another JP Morgan study found that 42% of stocks in the Russell 3000 Index, which is made up of the 3,000 largest companies in the U.S., had negative returns between 1980 and 2020, and that 44% saw 70% price declines from which they never fully recovered. So how did the S&P 500 perform so well during this stretch? The answer is that it lets its winners run.

The same study found that about 10% of stocks were megawinners, and that it was these stocks that helped consistently power the market higher. This same dynamic is in play today, as the market’s winners, such as Nvidia and Apple, continue to help lead the overall stock market higher, even when there are pockets of weakness.

Over the past decade, the Vanguard S&P 500 ETF has generated an average annual return of 14.6%. That is a great return and can easily help you build long-term wealth through a dollar-cost averaging plan.