Thinking of Putting All Your Savings Into VOO? Here’s Why You May Not Want To

The money you’re saving for long-term goals like retirement needs to be invested. If you let it sit in cash, you risk having its growth stagnate. The result? A nest egg you’re not happy with.

But investing can be a bit complicated. So if you want a potentially easy way out, a good bet is to fall back on an investment like the Vanguard S&P 500 ETF (VOO).

The nice thing about VOO is that you’re investing in the 500 largest publicly traded companies today. Larger companies are often said to be less risky than smaller companies because they’re well established. So if you’re worried about taking on too much risk, VOO could be a good investment for you.

Plus, with an S&P 500 ETF, you get immediate diversification. That could help protect you from losses during period of market turbulence.

But while VOO may be a solid investment, you may want to think twice before putting all of your savings into it. Here’s why.

You should have some assets outside of the stock market

Even if you’re not close to retirement, it’s generally not a great idea to have your entire portfolio tied up in the stock market. You should have at least a small percentage of your assets in bonds, which tend to be far more stable, and even cash.

The S&P 500, which is generally representative of the stock market on a whole, can be very volatile. And you never know when you might need to take money out of your long-term savings. So it’s good to have a portion of your portfolio exposed to less risk.

VOO won’t help you beat the market

Over the past 100 years, give or take, the stock market’s average annual return has been around 10%. This accounts for periods when the market did very well, but it also includes periods when the market lost money.

If you put your savings into VOO, you might snag a similar return in your portfolio, since VOO’s goal is to match the S&P 500’s performance. But the goal is not to beat the broad market. And if you want to do that, you’ll need to branch out into other investments — namely, individual stocks.

Here’s an example highlighting the difference between having your assets in VOO alone versus VOO plus a combination of individual stocks. If you invest $10,000 over a 40-year period at a 10% return, you’ll end up with about $450,000. But if you manage to score a 14% return in your portfolio instead, you’ll be looking at about $1.9 million.

It doesn’t take a math genius to see that there’s a huge difference there. So you may not want to limit your returns when you can potentially do better.

The Vanguard S&P 500 ETF is a great choice for a lot of people’s savings, and it’s an investment you should strongly consider. But you may not want to make it your only investment. Combined with other assets, it could be the perfect tool for fueling your portfolio’s growth.

The post Thinking of Putting All Your Savings Into VOO? Here’s Why You May Not Want To appeared first on 24/7 Wall St..