The burgeoning amount of information at our fingertips, coupled with the ease and low cost of brokerage services, has reduced the typical holding period for investors these days. At least some investors are drawn to short-term thinking and trying to make profits by quickly moving in and out of stocks.
This type of behavior can be very tempting. But investors should completely drop the concept of day trading from their minds. Buying this proven exchange-traded fund (ETF) instead is a surefire way of building lasting wealth. Here’s why.
The pitfalls of a short-term mindset
The concept of a day trader with 10 computer monitors at their desk — all showing various charts and graphs — probably looks very cool to the average investor. Having a pulse on the markets and making quick trading moves is alluring. And the fact that both the S&P 500 and the Nasdaq Composite are in record territory further persuades people to want to ride the momentum to quick gains.
However, I believe that day trading is a losing proposition for virtually every single individual investor out there. It’s extremely risky, forces short-term thinking, requires making accurate decisions on a consistent basis, and has low odds of success. In other words, it’s best to avoid this altogether.
The advantages of a long-term mindset
The better course of action is to consider buying the Vanguard S&P 500 ETF (NYSEMKT: VOO) instead. This is an investment vehicle that tracks the performance of the S&P 500, a collection of large and profitable American businesses.
Investors gain broad diversification by owning the Vanguard S&P 500 ETF. While the “Magnificent Seven” stocks represent a sizable portion of the assets, there are also much smaller companies in the portfolio. The beauty is that you get access to all sectors of the economy. As innovation and growth continue propelling the U.S. forward, this ETF is in a position to reward its owners.
It’s hard to deny the Vanguard S&P 500 ETF’s track record. Since its inception in Sept. 2010, it has produced an annualized return of 14.4%. This means that a $10,000 initial investment would be worth more than $60,000 today.
That kind of gain puts day trading to shame. Buying this ETF requires minimal effort and maintenance on your part. It’s also far less stressful. And it’s a proven strategy that works. This also completely eliminates the need to correctly time the market, forecast economic data, or try and figure out what revenue and earnings a business will report next quarter.
There are other encouraging factors to keep in mind. The Vanguard S&P 500 ETF is sponsored by a reputable asset management company with a history that spans nearly five decades. And with total assets in this fund of $1.1 trillion, investors can rest assured knowing their capital is placed alongside many other people’s savings.
I’ll also highlight the ultra-low expense ratio of 0.03%. For every $10,000 that’s invested, the annual fee will total a tiny $3. You keep more of your money.
Compared to day trading, buying and holding the Vanguard S&P 500 ETF for years and decades is also incredibly advantageous from a tax perspective. Day traders constantly have to pay short-term capital gains taxes similar to ordinary income. And this can significantly eat away at any possible returns. This is another headwind to think about that makes successful day trading an uphill battle.
At the end of the day, it’s all about building lasting wealth utilizing a method that works with a high probability of success. The Vanguard S&P 500 ETF can provide that for you.
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.
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 tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 8, 2024
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Forget Day Trading — This ETF Is a Much Safer Buy for Lasting Wealth was originally published by The Motley Fool
