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It’s fair to say that 2022 was a pretty tough year for stock market investors. At this point, many people are seeing year-to-date losses in their portfolios. And while the market could rally in 2023, we really don’t know what the next 12 months have in store.
But that doesn’t mean you should stop investing. Quite the contrary — it’s actually a good time to keep adding different assets to your portfolio since many can be purchased at a discount.
Still, handpicking stocks at a time like this might throw you for a loop, especially if you’re a newer investor or someone who tends to lack confidence in your portfolio-related decisions. And that’s why you might want to fall back on ETFs, or exchange-traded funds, instead.
The beauty of ETFs is that they effectively let you pump money into many different stocks — with a single investment. And while there are lots of ETFs you can choose from, one I recommend for 2023 is none other than the Vanguard S&P 500 ETF (VOO 1.86%).
As the name implies, the Vanguard S&P 500 ETF is pegged to the performance of the S&P 500 index, which consists of the 500 largest publicly traded companies today.
You know how you’ll often hear on the news that the stock market had a good day or a bad day? In that context, reporters will often use the S&P 500’s performance to represent the stock market as a whole.
Now, let’s get one thing out of the way. The Vanguard S&P 500 ETF did not perform particularly well in 2022, but that’s because the market as a whole did poorly. So you really shouldn’t decide to buy shares based on 2022’s performance.
But since its inception in 2010, the Vanguard S&P 500 ETF has delivered an average annual return of about 12.5%. So, assuming that same return, if you were to invest $10,000 into it in 2023 and leave that money alone for 30 years, you’d wind up with over $342,000.
The Vanguard S&P 500 ETF also has an expense ratio of just 0.03%. That’s basically the fee you’ll pay to put money into it. Vanguard reports that similar funds have an average expense ratio of 0.78%. So, by comparison, 0.03% is a negligible amount to pay.
Handpicking stocks can be tricky when the market seems to be going wild. Falling back on a broad market ETF like the Vanguard S&P 500 ETF could help you sleep better at night and avoid the stress of choosing individual businesses to invest in.
Of course, the one drawback of putting money into the Vanguard S&P 500 ETF is that you will not beat the S&P 500’s performance — you’ll match it, at best. But if you can make peace with that, it pays to ease your mental load and put your money into an asset that could end up rewarding you generously over time.
Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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