Dogecoin‘s (CRYPTO:DOGE) meteoric rise has created some overnight millionaires, but co-creator Billy Markus isn’t one of them. He sold all his coins back in 2015 after he got laid off and spent the money on a used Honda Civic.
You’d think he’d be kicking himself right about now, but he actually isn’t trying to cash in on the craze he started. Instead, he’s shifted his focus to a different millionaire-maker investment, and this one has a lot more staying power.
An S&P 500 index fund could be your ticket to wealth
The risk-averse Markus isn’t hunting for the next it-crypto. Instead, he’s investing most of his savings in an S&P 500 index fund, according to Bloomberg.
For those of you who don’t know what that is, an S&P 500 index fund is a mutual fund or exchange-traded fund (ETF) — a collection of stocks you purchase together — that contains the same stocks as a market index. In this case, that’s the S&P 500, which tracks 500 of the largest companies in the U.S.
Because index funds are built to mimic their index, they tend to produce similar returns, which for the S&P 500 is pretty substantial. Over the past 30 years, the S&P 500 has delivered a compound annual growth rate (CAGR) of 10.7% per year. That’s a fancy way of saying if it had grown at a steady rate, it would have grown by 10.7% annually over those 30 years.
If you invested $10,000 in an S&P 500 index fund 30 years ago, you would have over $211,000 today. And if the S&P 500 grew by an average of 10.7% every year for the next 30 years, you’d end up with over $4 million by the end of 60 years.
Dogecoin, by comparison, hasn’t even been around for 10 years yet, and we don’t know that it will be around in another 10 years. The entire crypto market is highly speculative right now, and while a few people have made a fortune off of Dogecoin, Bitcoin, Ethereum, and other popular cryptocurrencies, there have been people who have lost a lot of money, too.
Plus, if you put all of your money in Dogecoin, market volatility can hurt you a lot more. With an S&P 500 index fund, your money is spread among 500 companies, so when one stock falls, there are others to pick up the slack.
How to invest in S&P 500 index funds
S&P 500 index funds are pretty popular, so they shouldn’t be too difficult to find. Three of the most popular options are:
- Vanguard S&P 500 ETF
- iShares Core S&P 500 ETF
- SPDR S&P 500 ETF Trust
Since they’re all tracking the same index, they all have pretty similar returns. The SPDR S&P 500 ETF Trust has a slightly higher expense ratio, or annual fee, at 0.09% compared to 0.03% for the Vanguard S&P 500 ETF and the iShares Core S&P 500 ETF, but that’s a difference of only $6 per year on a $10,000 investment.
There’s nothing wrong with investing in cryptocurrency, too, if you’re willing to take on a lot of risk. But you should still build a solid foundation first by investing a large part of your savings in an S&P 500 index fund or another index fund that gives you a stake in many different companies and sectors so you can better withstand market volatility.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.