2 Index ETFs to Buy With $500 and Hold Forever

Investing in stocks can be complicated. From earnings, to cash flow, to balance sheets, there are a lot of numbers and financial jargon when it comes to researching stocks. And that's only half of it. Investors also need to determine whether a company's products and services will continue to grow, and what competitive threats may emerge.

Meanwhile, professional investors have teams of analysts modeling out financial projections, scouring SEC filings, listening to conference calls, and talking to industry-leading experts to get an edge. Even then, most professionals fail to outperform the market over the long run.

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That's why it's a good idea for many investors, especially those newer to investing, to start with exchange-traded funds (ETFs). I highly recommend investing in ETFs that are tied to major stock market indices. Let's look at two great index ETFs that investors can buy and hold forever.

The Vanguard S&P 500 ETF

When the media talks about the performance of the stock market, it's generally referring to the performance of the S&P 500, which consists of the 500 largest companies traded in the U.S. As a market-weighted index, the larger a company is by market cap (the size of the company calculated by multiplying its number of shares outstanding by its stock price), the bigger the position it is in the index.

Investment professionals who run actively managed funds are generally trying to beat a benchmark index like the S&P 500. However, they tend to do a poor job. According to S&P Global, over the past 10 years, only 10% of U.S. fund managers were able to beat their benchmarked indices during this stretch, as of the end of June.

This is why investing in an ETF that tracks the S&P 500 is a good idea. One of the best options is the the Vanguard S&P 500 ETF (NYSEMKT: VOO), which has a minimal expense ratio of just 0.03%. Vanguard has a long history of being the leader in index investing, and it's a low-cost leader. Fees can eat greatly into investment performance, but with the Vanguard S&P 500 ETF, investors get to keep virtually all its gains.

The ETF gives investors instant diversification, with investment across sectors in established large-cap companies. Technology is its largest sector, representing more than 30% of its portfolio. Its top holdings at the end of November 2024 were Apple (7.1%), Nvidia (6.7%), Microsoft (6.2%), Amazon (3.8%), and Alphabet (3.5%).

The Vanguard S&P 500 ETF has a very strong track record. The ETF has produced a total return, including dividends, of 25% or more in each of the past two years, and in three of the past four years.

It has generated an average annual return of 13.1% over the past decade, as of the end of 2024. On a cumulative basis, that is good for a 241% return. As such, a $500 investment in it 10 years ago would be worth over $1,700 today.

Image source: Getty Images.

Invesco QQQ ETF

If you like the technology sector, another great ETF to buy and hold for a long time is the Invesco QQQ ETF (NASDAQ: QQQ). Technology continues to shape the world we live in, and technology companies have, not surprisingly, grown to be many of the largest in the world.

The Invesco QQQ ETF tracks the Nasdaq-100 index, which consists of the 100 largest stocks that trade on the Nasdaq Stock Exchange. As of the end of September 2024, about 60% of its holdings were in the technology sector. Its top holdings are actually the same as the Vanguard S&P 500 ETF's, but with slightly different weightings: Apple (9.5%), Nvidia (8.8%), Microsoft (8.1%), Amazon (6%), and Alphabet (5.6%). Costco Wholesale is its largest non-tech holding, accounting for 2.6% of its portfolio as of Jan. 2.

While managed funds have struggled to beat the performance of the S&P 500, the Invesco QQQ ETF has actually made a habit out of it. The ETF edged out the performance of the S&P 500 with a 25.6% return in 2024, but it's the 10-year performance that really sticks out. The ETF has generated a 435.9% cumulative return over the past decade as of the end of 2024, which is well ahead of the 242.5% return of the S&P 500 over the same period (or the 241.4% return of the Vanguard S&P 500 ETF, which included fees). For its part, the Invesco QQQ ETF has an expense ratio of 0.2%.

A $500 investment in the Invesco QQQ ETF 10 years ago would be worth nearly $2,700 today.

Dollar-cost average

Regardless of whether you buy the Vanguard S&P 500 ETF, the Invesco QQQ ETF, or both, the key is to consistently invest in the funds using a dollar-cost averaging strategy. This means buying the ETFs on a regular, consistent basis, whether the market is up or down. You don't have to put in a lot of money, but setting aside a little money to invest each month can go a long way.

This strategy is one of the best ways to grow your investments over time and build long-term wealth.

Should you invest $1,000 in Vanguard S&P 500 ETF right now?

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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. Geoffrey Seiler has positions in Alphabet, Invesco QQQ Trust, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.