This 1 simple ETF could turn $500 a month into $1 million

There’s no denying that the stock market is arguably the best tool the average person has for building long-term wealth. But figuring out which stocks or funds to buy can certainly seem like a daunting task at first. However, it doesn’t have to be complicated.

In fact, there is a surefire way for investors to one day reach a $1 million portfolio balance. Investing just $500 per month in Vanguard S&P 500 ETF (VOO 0.92%) it could help you reach the seven-figure mark. Let’s take a closer look at this exchange traded fund (ETF).

Running the numbers

Historically, S&P 500which is an index of 500 large and profitable US businesses, has generated a total return of about 10% per year. This may not seem like much. However, over many years and decades, the results can be phenomenal.

Assuming the 10% average annual gain holds going forward, investors who can put $500 into the Vanguard S&P 500 ETF monthly will see their portfolios eclipse the $1 million mark in about 30 years. If you have the ability to put more money to work and/or if the index has higher returns, your portfolio will reach $1 million much faster. Put less or run into tougher market conditions and it could last longer.

This dollar cost averaging the strategy means that investors do not have to time the market correctly. Buying at multiple entry points ensures that different prices are taken advantage of.

Look at the positive traits

The legendary Warren Buffett, who is one of the greatest investors ever, suggests that buying such an ETF is the smartest move for the average person. That’s because it doesn’t require one to have expert financial analysis skills in order to successfully pick individual stocks. Moreover, not having to do this can free up a lot of time to do other things and enjoy life. This is extremely compelling to most people who simply want a passive investment vehicle to put their savings into.

The Vanguard S&P 500 ETF provides broad diversification across numerous sectors and industries. But to be clear, information technology stocks such as Apple and Microsoftown a whopping 31% stake in the fund. There are also much smaller positions in lesser known businesses.

Exposure to so many companies means an investor is essentially betting on the growth and innovation of the US economy as a whole. This was a profitable prospect, if history is any indication.

Even better, investors aren’t required to pay a fortune to own the Vanguard S&P 500 ETF. Quite the opposite, in fact. The expense report of 0.03% means that for every $10,000 invested, only $3 goes toward the annual fee. In essence, you get to keep more of your return over time, which is exactly what investors should want.

Keep that in mind

Sounds too easy, doesn’t it? Put $500 into the Vanguard S&P 500 ETF monthly and you’ll eventually become a millionaire. While the math makes sense, investors should keep in mind a few under-the-radar factors.

There will undoubtedly be volatility along the way. The S&P 500, as diversified as it is, faces corrections and bear markets from time to time. This cannot be avoided. Investors must mentally prepare themselves for the inevitable ups and downs, as the ability to deal with them is the key to strong returns.

It helps to have a long-term mindset. Instead of focusing on the next quarter or next year, investors should turn their attention to the next decade and beyond. This keeps things in perspective while encouraging patience.

If you’re looking for a winning investment idea, consider the Vanguard S&P 500 ETF.