Many people have become millionaires or even billionaires through investing. This doesn’t just include famous financial gurus like Warren Buffett — it also means everyday people who put their money into the stock market and earned generous returns that helped them build wealth.
Because investing in stocks has historically and consistently produced better returns than investing in other assets such as real estate or bonds, buying equities can be the surest path to financial security. But you may be intimidated by the process of actually picking stocks, which could hold you back from taking advantage of the opportunities investing provides.
The good news is, you don’t actually need to become a stock-picking expert in order to invest your money in the market and become a millionaire.
Simple investments can still make you a millionaire
If you want to maximize the chances of earning generous returns on your money so you can build a hefty nest egg but don’t have the knowledge or interest to select individual stocks, there’s a very simple solution available to you: You can invest in exchange-traded funds (ETFs).
ETFs trade like stocks and can be purchased on exchanges such as the Nasdaq or New York Stock Exchange. When you buy an ETF, you’re buying a basket of different assets the ETF is invested in. In other words, you gain a very small ownership share in lots of different individual stocks.
When you’ve purchased an ETF, you get instant diversification because you’re buying a small stake in many different businesses instead of one. You don’t have to research individual companies, and picking between ETFs is easy, since you can just take a quick glance at the types of assets the fund invests in, the fees it charges, and its past performance.
Most brokerage firms have screeners that allow you to easily narrow down ETFs based on what kind of companies you want to buy into. And many ETFs are passively managed, which means algorithms pick the investments or the investments are chosen to mirror a financial index. So the administrative costs are very low, and high fees won’t eat into your potential returns.
Of course, there’s still a risk you could lose money with ETFs. But that risk is reduced compared with investing in individual stocks because you’re putting your eggs into many baskets instead of just one.
How ETF investing can make you rich
The great thing about ETFs is that there are tons of them available, so they make it possible for you to invest in different kinds of companies or industries without much research or specialized knowledge.
The simplest approach to getting your money into the market is to invest in ETFs that track the performance of the market as a whole, such as the Vanguard Total Stock Market ETF. This ETF gives you exposure to the entire U.S. stock market by spreading your money around to buy shares of large, midsize, and small companies. You could also buy an ETF that tracks the performance of the S&P 500, a financial index made up of around 500 of the largest companies.
You also have the ability to buy specialized ETFs if you want to invest in particular types of businesses. For example, if you think healthcare or cannabis stocks are likely to outperform the market as a whole, you could buy healthcare or marijuana ETFs.
Many ETFs have a long history of producing generous returns. The S&P 500, for example, has produced average annual returns of around 10% over the long term. So if you pick an S&P 500 ETF, your returns should be close to that amount if you leave your money invested long enough.
As you earn returns, the money can be reinvested and grow effortlessly. Over time, the compound growth you enjoy will help you on your path to becoming a millionaire.
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.