What is the best way to invest in stocks without any experience? Try this index fund.

Investing in the stock market is one of the most effective ways to build wealth over time. Fortunately, stock ownership in the United States has been the highest it has been in years. Today, 62% of Americans own stocks in individual and retirement accounts. Unfortunately, it’s still about 4 out of 10 people who don’t.

Investing can be as simple or as complex as you want to make it. A common mistake many new investors make is to dive head first into riskier strategies such as individual stocks and options. If you’re just starting out, consider buying a high-quality index fund.

One that stands out for its simplicity and amazing long-term results is Vanguard S&P 500 ETFs (VOO 0.94%). Here’s what you need to know.

Why index funds are perfect for beginners

There are countless funds you can invest in. Professionals actively manage some, while others track a portion of the stock market or the market in general. Index funds are the easiest way to go, which makes them great for beginners.

An index is a sample that represents something larger. In the stock market, indices are groups of stocks that represent the broader markets. When someone wants to know how the stock market is doing, they don’t look at the thousands of individual stocks in the market; looks at market indices.

Some of the most popular indexes in the United States are Dow Jones Industrial AverageTHE Nasdaq Compositeand S&P 500.

Of course, an index fund is an investment fund that mimics a stock index. The Vanguard S&P 500 ETF tracks the S&P 500, for example.

Index funds are great for beginners because they instantly diversify your money across multiple stocks so you don’t have all your eggs in one basket. For example, the S&P 500 is an index of 500 prominent US companies. Each share of the Vanguard S&P 500 ETF you buy technically means you own small pieces of these 500 companies.

What makes the S&P 500 so great

In addition to slight diversification, the modern S&P 500 has established itself as the gold standard of the stock market since its inception in the 1950s. The index represents the most prominent companies in America, arguably the world’s most innovative economy.

As a result, the S&P 500 has appreciated enormously over the years, creating immense wealth for those who invest alongside it:

^ SPX data by YCharts

The secret of the index is that it is market capitalization weighted. In other words, larger and more successful companies account for more of the index. This means that the index is consistently skewed towards winning stocks, and companies that are continually struggling are removed from the index if a better up-and-coming company is waiting in the wings. It’s such a well-built system that most Wall Street professionals don’t beat the S&P 500 over the long term.

Here’s your game plan to get started

If you are patient enough, the S&P 500 will never lose money. The index is positive in every 20-year period of its history. However, this does not mean that you should gather without thinking.

The truth is that the S&P 500 is expensive today by historical standards. At the same time, trying to time the market by guessing when it might go up or down doesn’t work either.

Instead, consider a dollar cost averaging strategy. That means buying slowly, little by little. Sometimes you will buy when the market is up, sometimes when it is down. However, you will slowly reach something in the middle that leaves room for investment returns as the market works its magic over the long term.

Investing regularly in the S&P 500 and waiting is a simple but powerful way to build wealth. It is perfect for both beginners and experienced investors.