The Triumph of the Boring: Why S&P 500 ETFs Should Be the Backbone of Every Portfolio

Exchange Traded Funds (ETFs) have gained popularity as investment instruments in recent years. These innovative vehicles offer both index tracking and active management, thereby enabling investors to achieve broad diversification. While actively managed ETFs reflect specific trends or categories such as artificial intelligence or fintech, index-based ETFs are oriented towards established indices. A prime example of this is the Vanguard Information Technology ETF. Despite the variety in the ETF market, a simple S&P 500 Index ETF remains a prudent investment. In particular, the Vanguard S&P 500 ETF is recommended as almost indispensable for investors looking to invest $1,000. There are many reasons for this: over the past ten years, the S&P 500 achieved an average annual return of 13.7% - an impressive performance. By acquiring such an ETF, investors gain access to 500 leading US companies without having to worry about selecting specific stocks. The index itself takes on this task. Even investment icon Warren Buffett has recognized the potential of this strategy, and Berkshire Hathaway holds two of these ETFs in its portfolio. Of course, investors should not be discouraged from investing in individual stocks. With the right strategy, individual investors can indeed outperform the market. They enjoy advantages that institutional money managers often lack, as they are often constrained in their creativity by corporate goals. Nevertheless, the individual stock strategy carries higher risks, while broad diversification, as offered by an S&P 500 ETF, minimizes this risk. Even if such an investment may initially seem unspectacular, it remains a solid pillar of any investment strategy. The S&P 500's performance of 27% in 2024 demonstrates the long-term success prospects of this approach.