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If I Could Buy Just One Investment, This Would Be It

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If I Could Buy Just One Investment, This Would Be It

Building a diversified portfolio full of sound investments is crucial to growing wealth and preparing for your financial future. But what if you could pick just one investment that would allow you to achieve the goal of growing your money while limiting risk?

I know that if I had to pick only one asset to put all my money into, the decision would be a no-brainer. I'd sink all of my cash into this investment without hesitation.

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The one investment I'd pick for my portfolio

If I had to choose a single investment, there's no question it would be an S&P 500 index fund. There are a few primary reasons for that.

First and foremost, an S&P index fund provides a very small ownership interest in around 500 of the largest companies in the United States. With this single investment, I'd buy small fractions of shares of innovative, well-established businesses that are extremely unlikely to fail.

This would provide me with instant diversification because I'd own a varied mix of stocks including technology companies, auto parts suppliers, communication and financial service businesses, and companies that make consumer goods. With such a mix of different businesses, it's almost a given that at least some of the assets my money is invested in would perform well no matter the economic conditions.

By putting my money into an S&P 500 fund, I'd also be taking minimal risk. This is crucial, since if this was my only investment, I'd have 100% of my money in equities, and it's generally a good idea to put some cash into other types of investments such as bonds. The S&P 500 index has reliably produced average annual returns of around 10% over its long history. And anyone who invested in an S&P fund and left their money alone for at least 20 years should have always turned a profit at the end of 20 years, no matter how poorly timed their investment.

Lastly, I'd also be limiting the investing fees I'd owe by putting my money into an S&P 500 index fund. Since these funds are passively managed with stocks selected to mimic the performance of the index, rather than actively managed, there's minimal cost involved. Investment fees reduce effective returns, so keeping them to a minimum is essential to maximizing the amount of money you end up with.

By investing everything in an S&P fund, I'd miss out on my chance to try to beat the market. When most people talk about the market's performance, they're usually referring to how the S&P 500 is doing. You aren't going to earn huge returns over a short time when you're investing in so many companies at once since they aren't all going to outperform expectations dramatically.

But investing in an S&P fund is easy and simple, it all-but eliminates the chances of losing money over the long term, and it could turn you into a millionaire over time if you invest enough in it. Of course, you don't have to pick just one investment. But if you don't want to spend a lot of time managing your portfolio, putting most or all of your money into an S&P index fund could be the smartest move you'll make.

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The Motley Fool has a disclosure policy.

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