What Are S&P 500 Index Funds and Can They Make You a Millionaire?

Do you ever hear news reports that the stock market rallied, or that it tanked due to a piece of worrisome news? Often in these reports, the stock market refers to the S&P 500 index, which represents about 80% of the US stock market.

An S&P 500 index fund is a fund that tracks the performance of the S&P 500 index. These are among the most popular investments on the planet, and for good reason. An S&P 500 index fund can make practically anyone wealthy, given enough time and patience .

Here’s how S&P 500 index funds work and why they’re a safe and reliable choice for most investors.

What Is an S&P 500 Index Fund?

The S&P 500 is a stock index that tracks the performance of stocks in the S&P 500 index. (There are actually 503 stocks in the S&P 500 because three of the companies issue two classes of shares.)

It’s the most widely tracked stock index in the US, followed by the Dow Jones Industrial Average and the Nasdaq. When you hear in the news that stocks rallied or stocks plunged, often that means that the overall prices of those 503 stocks in the S&P 500 trended upward or downward.

An S&P 500 index fund is a pool of stocks designed to track the S&P 500. With one single investment, you’re automatically invested across all 500 companies in the index.

If the S&P 500 index goes up by 20% in a year and you’ve invested in an S&P 500 index fund, you’d expect returns of about 20%, minus investment fees, which are usually minimal. If the index falls by 20 %, you’d expect the value of your investment to drop by 20% as well.

The goal isn’t to beat the market. Instead, an S&P 500 index fund aims to replicate the performance of the S&P 500 index as closely as possible.

Though some years, like 2022, the S&P 500 index will drop, it has about a 75% chance of gaining value in any given year, with annual returns averaging about 10%. Maybe that doesn’t sound like a lot, particularly in comparison to the mind-boggling returns investors saw in…

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