The S&P 500 is the most closely watched stock market index. And it's arguably the easiest index to invest in, particularly with an exchange-traded fund (ETF). With $472 billion in assets under management, the Vanguard S&P 500 ETF (NYSEMKT: VOO) is the most popular way you can track the performance of the S&P 500. But can this ETF make you a millionaire?

Betting on the U.S. economy

The S&P 500 contains 500 large and profitable enterprises that are based in the U.S. There's a wide range of businesses. The top three stocks are Microsoft, Nvidia, and Apple -- well-known names that, combined, make up 20% of the assets. Then there are much smaller companies at the other end of the spectrum, like News Corp, which makes up just 0.01% of the portfolio.

Owning this ETF essentially means you are placing a bet on the growth of the U.S. economy, which has historically been a lucrative gamble. Since its inception in 2010, this Vanguard S&P 500 ETF has generated a total annualized return of 14.5%. But over the past several decades, the S&P 500 has averaged a yearly 10% return.

Most active fund managers, the so-called experts in the investment management industry, actually underperform the S&P 500 over extended periods of time. However, this doesn't stop them from charging what might seem like outlandish fees. People still pay for their services.

The good news with the Vanguard S&P 500 ETF is that the annual expense ratio of 0.03% is extremely compelling. On every $10,000 investment, only $3 goes toward the yearly fee. That's a small price to pay, ensuring investors keep more of their capital. Plus, you can sleep well at night knowing that your portfolio is doing better than the vast majority of fund managers out there.

Should you buy now?

As of this writing, the ETF is trading just 4% off its record level, which was achieved in the middle of July. The market has experienced an impressive bull run, as investors likely believe that the Federal Reserve can bring down inflation without tipping the economy into a recession. The artificial intelligence craze has also propelled stocks higher.

Naturally, you're probably wondering if now is still a good time to invest your money. Wouldn't it be better to wait for a pullback? That idea sounds good in theory, but it's almost impossible to correctly predict market tops and bottoms with any sort of accuracy. The best course of action is simply to invest and let time work on your side.

The Vanguard S&P 500 ETF has certainly made for a solid investment throughout its history. I believe that over the long term, there's no reason it can't mimic its past returns, even though previous results don't guarantee future outcomes. It's reasonable for investors to expect annualized 10% gains, although there will certainly be volatility.

This all means that the ETF could make you a millionaire one day -- on two conditions. The first is that you are able to invest with an extremely long-term time horizon that spans many decades. This will allow compounding to work its magic.

The second condition is that you not only invest upfront, but that you also adopt dollar-cost averaging. This strategy helps build a consistent habit of saving, and it can seriously boost returns.

Let's say you invested $10,000 in the Vanguard S&P 500 ETF today, while also adding $100 every month. Based on a 10% annual return, you would be a millionaire in 40 years. Those who can increase the initial investment or the monthly additions will find that the timeline to the seven-figure club will shorten.

Should you invest $1,000 in Vanguard S&P 500 ETF right now?

Before you buy stock in Vanguard S&P 500 ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $683,777!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of July 29, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Is the Vanguard S&P 500 ETF a Millionaire Maker? was originally published by The Motley Fool