Key Points

• First, the good news: Most states these days do not tax Social Security benefits.

• For those states that do, it's often with a light touch, like taxing higher-income retirees.

• Still, Social Security benefits may not be as generous as you expect, so plan ahead.

• The $23,760 Social Security bonus most retirees completely overlook ›

"I'm proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money." -- Arthur Godfrey

No one loves paying taxes, but they do keep our schools and courts and other things running. Still, it's worth learning more about our tax system in order to keep as much of your money in your own pocket. That can be especially important when you're retired and living on a limited income.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Most retirees are lucky when it comes to the taxation of Social Security benefits, as only nine states currently tax them. Don't get too worried if you happen to live in one of them, though, as many tax with a light touch. Here's a closer look at the issue.

The nine states that tax Social Security benefits

Without further ado, here are the nine states:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia

There's probably no need to relocate if you live in one of those states (although relocating for retirement can be a smart move for some folks). That's because each state has a different policy and your Social Security benefits may not be taxed much or at all. Some states, for example, exclude those of a certain age or those with incomes under a certain threshold from being taxed much or at all.

For example, in West Virginia, those with federal adjusted gross income (AGI) of $50,000 or less, or couples filing jointly with AGI of $100,000 or less, will not have their Social Security benefits taxed. And by 2026, it's expected that all Social Security income in West Virginia will not be taxed.

Meanwhile, Colorado residents aged 65 and older are exempt from taxes on their Social Security benefits. And a new law is exempting those aged 55 to 64 if their adjusted gross incomes are below certain levels, beginning with the 2025 tax year.

Unfortunately, there's still Uncle Sam...

While most states now exclude Social Security benefits from taxation, that's not the case with our federal government. Your benefits may end up taxed on a federal level -- up to 85% of them, that is:

Data source: Social Security Administration.
*Your "combined income" is your adjusted gross income plus non-taxable interest, plus half of your Social Security benefits.

Do note that the table above does not show a tax rate of 50% or 85%. You won't pay 50% or 85% of your benefits in taxes. Instead, those are the portions of your benefits that might end up taxed, depending on your income.

President Donald Trump's One Beautiful Bill Act offers a new deduction of $6,000 for older Americans that can help offset any taxes paid on Social Security benefits.

Before you get very worked up about any taxation of any benefits, know that for most of us, Social Security benefits, while vital, are not that generous. The average monthly Social Security retirement benefit was $2,005 as of June, amounting to about $24,000 annually.

Most of us need to have a good retirement plan in place, arrived at after we estimate how much income we'll need in retirement and how we'll get it. Most of us should be saving and investing effectively for many years to amass hefty nest eggs. It's also smart to set up multiple income streams in retirement -- perhaps from sources such as dividends, annuities, and interest.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Key Points

• Growth stocks can help your portfolio grow faster -- but can be more volatile.

• Here are a handful of great growers that aren't insanely overvalued.

• Even more convenient: consider this growth ETF instead.

• 10 stocks we like better than iShares Trust - iShares U.s. Technology ETF ›

Most of us would love to have portfolios featuring some great growth stocks, right? Why have your portfolio growing at an average pace when it might grow at an above-average rate? That may seem obviously true, but there are some downsides to growth stocks, too.

Here's a look at some very promising growth stocks, including one that's exceptionally tempting, along with a few caveats to consider.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Nvidia

The semiconductor titan Nvidia (NASDAQ: NVDA) recently became the first company to reach a market capitalization of $4 trillion. It got there by averaging annual gains of 78% over the past decade -- and by becoming a key producer of data center chips that are increasingly necessary in this age of artificial intelligence (AI) everything.

Better still, Nvidia's shares seem to have plenty of room for further growth, with a recent forward-looking price-to-earnings (P/E) ratio of 37.3, below its five-year average of 39.5.

Microsoft

Meanwhile, Microsoft (NASDAQ: MSFT) is another compelling giant, with its recent forward P/E of 33 not far above its five-year average of 30, suggesting it's still reasonably valued. The company has multiple growing businesses, such as its dominant Office 365 suite of applications, its Azure cloud computing platform, its Xbox gaming platform, and its major Windows operating system, among many other things.

Microsoft pays a dividend that may seem small, with a recent yield of 0.67%, but that payout has been growing briskly. The recent total annual payout was $3.24 per share, up from $2.09 in 2020 and $1.59 in 2017. In Microsoft's third quarter, revenue grew by 13% year over year, with net income up 18%.

Alphabet

Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is also tempting to choose as the smartest growth stock. My colleague Keithen Drury recently called it a "once-in-a-decade opportunity." It encompasses not only the Google search engine, but YouTube, the Chrome browser, the Google Cloud Platform, and more. Alphabet's recent forward P/E of 18.8 is well below its five-year average of 22.1.

Meta Platforms

See how many terrific growth stocks are out there that aren't insanely overvalued? Here's another: Meta Platforms (NASDAQ: META), parent of Facebook, Instagram, WhatsApp, and more. On average, 3.4 billion people use at least one of Meta's services daily (up 6% year over year as of March). Meta Platforms' forward P/E, recently 28.5, was well above the five-year average of 21.1, but its PEG ratio (comparing its price to its growth rate) was a very reasonable 0.99, below the five-year average of 1.12.

Here's my smartest growth stock to buy

So which stock am I choosing? Well, I'm going to suggest you check out the iShares US Technology ETF (NYSEMKT: IYW). An exchange-traded fund (ETF) is a fund that trades like a stock, and this one tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, investing at least 80% of its assets in stocks from that index.

If you're thinking that a growth-stock ETF doesn't sound as exciting as an actual growth stock, know that this ETF has averaged annual returns of 19.6% over the past 15 years and 27.9% over the past three years. It's not a sleeper.

The fund recently encompassed 142 stocks, and its top 10 holdings made up 64% of its total value. Those top 10 stocks include all of the ones I mentioned earlier, and nearly 90% of the ETF's value is invested in technology stocks.

So take a closer look at this ETF if you're now intrigued. Buying into it will quickly make you a part owner of 142-some companies, with much of your invested dollars in the stocks mentioned above.

A few caveats to consider

As you think things through, though, remember that growth stocks are exciting, but they can also be volatile. If for any reason you fear our economy may be in for some bumps soon, perhaps due to tariff wars, know that growth stocks tend to fall harder during market downturns.

Think, too, about your holding period. No money that you'll need within around five years (if not 10, to be more conservative) should be in stocks, because market corrections do happen now and then. If you're interested in investing in any of these growth stocks or this ETF for just, say, a year, think twice. If you're a long-term investor, aiming to hold for many years and even a decade or more, you'll likely be able to ride out a market downturn or a slow period for any particular growth stock.

Should you invest $1,000 in iShares Trust - iShares U.s. Technology ETF right now?

Before you buy stock in iShares Trust - iShares U.s. Technology 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 iShares Trust - iShares U.s. Technology ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $671,477!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,010,880!*

Now, it’s worth noting Stock Advisor’s total average return is 1,047% — a market-crushing outperformance compared to 180% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of July 7, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. 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.

Key Points

• There's a lot of good that can be done with $25,000 or any other windfall.

• A good first step is to be sure you have an emergency fund set up.

• Also, pay off high interest rate debt before you start investing.

As always, The Motley Fool cannot and does not provide personalized investing or financial advice. This information is for informational and educational purposes only and is not a substitute for professional financial advice. Always seek the guidance of a qualified financial advisor for any questions regarding your personal financial situation. If you'd like to submit your question for feedback, you can do so here.

It's not easy to make money, and we often seem to need more of it to reach our goals or, sometimes, even just to pay the rent. Some of us therefore probably daydream about receiving a windfall sum, and how it could solve lots of problems.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Here's a look at a question posed by someone on Reddit, asking how to best deploy $25,000. I'll answer that question in broad terms -- to help anyone who has received or might receive a large cash infusion.

Parents are gifting me $25,000
byu/SnooPies6812 inpersonalfinance

Be sure to have an emergency fund

The questioner doesn't offer much information about their financial condition, so we don't know if they have an emergency fund. If they don't, that $25,000 will come in very handy as it can fund one.

An emergency fund should have enough accessible money to support you for at least three months, if not longer. Let's assume that the questioner spends $4,000 per month on housing, food, utilities, taxes, transportation, and other non-negotiables. So a three-month emergency fund would mean socking away $12,000. If they want to be more conservative, they might sock away more.

That money should be in a safe place, such as a savings account, a money market account, or a certificate of deposit (CD). Think about how much money you need to pay all your bills and expenses each month, and have a sufficient emergency fund for that. Remember that unexpected job losses happen, and costly health setbacks happen, too. Don't be unable to handle them.

Get out of high interest rate debt

We don't know whether the questioner on Reddit has any debt, but if they are burdened with any high interest rate debt such as that from credit cards, it's critical to get out of that debt.

Know that the average credit card interest rate was recently 25.37%, per Forbes Advisor. If you owe, say, $50,000 and you're being charged 25%, you're looking at paying around $12,500 per year -- just in interest!

So if the Reddit questioner -- or you -- has any such debt, it's a savvy move to pay it off with some or all of your cash windfall.

Sock it away until you know more and have a good plan

Once you have an emergency fund and no high interest rate debt, you can think about investing the money. But it's best to read up on investing first, so that you're comfortable with what you're doing. You can learn a lot at Fool.com, of course, and also in books such as The Motley Fool Investment Guide: Third Edition by David and Tom Gardner, The Little Book That Still Beats the Market by Joel Greenblatt, The Little Book of Common Sense Investing by John C. Bogle, and The Little Book That Builds Wealth by Pat Dorsey.

As you devise your plan for your windfall money, think in terms of time and how far out your various goals are. If you're planning to buy a home within five years, it's good to keep money saved for that out of stocks, as the stock market can be volatile. High-yield savings accounts can be a good option. Money you're saving for retirement, assuming it's a decade or two or more away, may grow fastest in stocks.

Invest that money!

For stock market investing, one excellent strategy is to make it easy on yourself and stick with exchange-traded funds (ETFs). There are many good index ETFs, such as the classic Vanguard S&P 500 ETF. There are also lots of great dividend-focused ETFs, some yielding 3% or more and offering recent double-digit average annual gains.

Here's how the questioner's money -- or your money -- could grow if it averages annual gains of 8%. For context, know that the S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods.

Data source: Calculations by author.

Unless we're financially independent, each of us needs to be saving and investing for our future needs -- and, ideally, making good use of tax-advantaged retirement accounts such as IRAs and 401(k)s. Be sure to do so, whether you're investing a lump-sum windfall or, like most people, you're socking money away every month or few months.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 1,050%* — a market-crushing outperformance compared to 179% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of June 30, 2025

Selena Maranjian has 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.

When it comes to investing, it makes a lot of sense for many of us to opt for exchange-traded funds (ETFs), which are funds that trade like stocks. With classic mutual funds, if you want to buy into one, you place your order and it gets filled at the end of the day, at a price based on the closing prices of its components that session. With an ETF, you can place an order to buy at any time during the trading day and that order can be executed immediately.

ETFs come in a wide variety, and many are low-fee index funds, including the popular Vanguard S&P 500 ETF (NYSEMKT: VOO). It's worth considering dividend-focused ETFs, too, as they can deliver valuable income for decades, without your having to research and choose individual dividend-paying stocks.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

One popular fund of this type is the SPDR S&P Dividend ETF (NYSEMKT: SDY). Would it be a good fit for your portfolio?

Why dividends?

Dividend-paying stocks are a more powerful tool for building investors' wealth than many people realize. Part of the reason is that in order to commit to paying a regular dividend, a company's management must be fairly confident in the reliability of cash flows, finding them sufficient to support the dividend. No company wants to have to shrink or eliminate a dividend, as that would be a red flag to investors.

Consider this tidbit from the folks at Hartford Funds: "Going back to 1960, 85% of the cumulative total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding."

Meet the SPDR S&P Dividend ETF

SPDR S&P Dividend ETF tracks the S&P High Yield Dividend Aristocrats index, which restricts its components to companies in the S&P Composite 1500 that have increased their payouts annually for at least 20 consecutive years. The ETF recently yielded a solid 2.59%.

Here's how it has performed in recent years

Source: Morningstar. Figures as of June 25, 2025.

You'll note that those are not the fattest returns -- but they come along with some durability, as not every company is so solidly built that it can not only pay dividends for at least 20 years, but increase them annually, too.

The SPDR S&P Dividend ETF recently held positions in 149 companies, and its top 10 holdings made up about 18% of its total value. Those recent top holdings were:

Source: Morningstar. Figures as of June 24, 2025.

Is the SPDR S&P Dividend ETF the best dividend ETF?

So -- is the SPDR S&P Dividend ETF the best dividend ETF? Well, sure, for some people. But there are other solid dividend-focused ETFs to consider. Here are some, along with an S&P 500 index fund, for comparison.

Source: Yahoo! Finance and Morningstar. Figures as of June 24, 2025.

Before you jump at the fattest yield you see, remember that dividend growth is important, too. An ETF with a yield of 4% today might be more tempting than one with a yield of 3%, but the fund with the 3% yield might be growing its payouts faster, and wind up delivering more actual income than the other within a few years. Remember that the SPDR S&P Dividend ETF is focused on dividend growers. Its quarterly payout in June 2025 was $0.927 per share, up from $0.68 in June 2020 and $0.503 in June 2015.

Note, too, that the JPMorgan Equity Premium Income ETF is a different kind of fund, not purely a holder of dividend-paying stocks. And the iShares Preferred & Income Securities ETF is focused on preferred stock, which tends to appreciate in value more slowly.

So dig in deeper into any ETF that intrigues you. Any of the ones above may serve you well, delivering increasing passive income to you and your portfolio for many years or decades.

Should you invest $1,000 in SPDR Series Trust - SPDR S&P Dividend ETF right now?

Before you buy stock in SPDR Series Trust - SPDR S&P Dividend 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 SPDR Series Trust - SPDR S&P Dividend ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $966,931!*

Now, it’s worth noting Stock Advisor’s total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 23, 2025

Selena Maranjian has positions in NextEra Energy, Realty Income, Schwab U.S. Dividend Equity ETF, and Verizon Communications. The Motley Fool has positions in and recommends Chevron, NextEra Energy, Realty Income, Target, Texas Instruments, Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Many, if not most, of us would do well to include a bunch of dividend payers in our portfolio. Naturally, if we're retired, we can use that regular income to pay for living expenses. But even if we're much younger and still working, dividends can be extremely useful. For example, at times when you don't have any extra cash with which to invest, you'll still be collecting dividend money, which can be used to buy more shares of stock for your long-term portfolio.

A particularly easy way to invest in dividend payers is via exchange-traded funds (ETFs), which are funds that trade like stocks. And a particularly popular one is the iShares Core Dividend Growth ETF (NYSEMKT: DGRO).

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Here's a look at that ETF and other dividend-focused ETFs so that you might find one(s) best-suited for you.

Why dividends?

First, let's establish why someone might be interested in investing in dividend payers. Sure, there's the dividend income. Check out the table below:

Data source: Ned Davis Research and Hartford Funds.

It shouldn't be too surprising that dividend payers perform so well. After all, to become one, a company typically has to be generating sufficiently reliable income so that management feels comfortable committing to a payout.

Of course, you might not get a 10% average annual return in the years that you're invested -- there are few guarantees in the stock market. Here's how your money might grow over time at different rates if you sock away $12,000 annually.

Data source: Calculations by author.

Meet the iShares Core Dividend Growth ETF

Now, let's take a closer look at the iShares Core Dividend Growth ETF. We'll start with performance. Here's how the ETF has performed in recent years:

Data source: Morningstar.com.

The iShares Core Dividend Growth ETF recently comprised 398 holdings, with its top 10 holdings accounting for about 27% of its total value. Here are those recent top 10 stocks:

Data source: Fidelity.com, as of June 24, 2025. ETF = exchange-traded fund.

The dividend should be of interest, too, right? Well, the ETF recently sported a dividend yield of 2.23%. That may not be huge, but it's well above the S&P 500's recent dividend yield of around 1.25%.

Know, too, that healthy and growing dividend payers tend to increase their payouts over time, so that dividend income you receive should grow from year to year. Indeed, the quarterly payout for June 2025 was $0.324 per share, up from $0.249 in June of 2020 and $0.169 in June of 2015.

Is the iShares Core Dividend Growth ETF the best dividend ETF?

The iShares ETF is not the only game in town when it comes to ETFs with meaningful dividend yields. Below are some others to consider. I'll compare their numbers to an S&P 500 index fund, too:

Source: Yahoo! Finance and Morningstar.com, as of June 24, 2025. ETF = exchange-traded fund.

You can see that to some degree, the greater growth rate you pursue, the lower yield you may have to accept. But some of the funds above could be more compelling than the iShares Core Dividend Growth ETF, offering greater yields and impressive average annual gains.

Think through what's most important to you and dig deeper into any ETF of interest, as there's usually more to know. For example, the JPMorgan Equity Premium Income ETF is a different beast, not simply investing in dividend-paying stocks. And the iShares Preferred & Income Securities ETF focuses on preferred stock, which tends to appreciate in value more slowly.

You'll likely do very well investing in the iShares Core Dividend Growth ETF, but you might do a bit better with some of the other ETFs above.

Should you invest $1,000 in iShares Trust - iShares Core Dividend Growth ETF right now?

Before you buy stock in iShares Trust - iShares Core Dividend Growth 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 iShares Trust - iShares Core Dividend Growth ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $966,931!*

Now, it’s worth noting Stock Advisor’s total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 23, 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. Selena Maranjian has positions in AbbVie, Apple, Broadcom, Microsoft, Procter & Gamble, and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends AbbVie, Apple, Home Depot, JPMorgan Chase, Merck, Microsoft, Vanguard Dividend Appreciation ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom and Johnson & Johnson and 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.

If you know you should be saving and investing for retirement, but you don't know where to start, perhaps take some advice from one of the world's greatest investors. Warren Buffett has increased the value of his company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), by 5,500,000% (nearly 20% annually) over 60 years. In contrast, the S&P 500 index of 500 of America's biggest companies gained about 39,000% (10.4% annually, on average).

You might want to invest in some shares of Berkshire Hathaway itself, as it has been built to last. But Buffett has recommended a different investment for most people.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: The Motley Fool.

What does Warren Buffett recommend?

In his 2013 letter to shareholders, Buffett explained how he has directed his money to be invested for his wife, after his death. (Buffett turns 95 in August.) He wrote:

One bequest provides that cash will be delivered to a trustee for my wife's benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions or individuals -- who employ high-fee managers.

That's right: Buffett is a big fan of simple, low-fee, broad-market index funds for most investors. He knows, after all, that most of us are not skilled stock analysts with appropriate investing temperaments.

Buffett is such a strong believer in the power of broad index funds that he put his money where his mouth is, entering into a 10-year, million-dollar bet in 2008 favoring index funds over hedge funds. He won the bet, of course.

Why an S&P 500 index fund? And which one?

There are many reasons to favor index funds. For example:

• Low fees: The best index funds sport extremely low expense ratios (annual fees) -- in part because managers don't have to spend time studying the universe of investments and selecting when to buy or sell which ones. Instead, they just buy all or most of the securities in the index they track. An expense ratio of, say, 0.03% means you'll pay $3 per year for every $10,000 you have invested in the fund.
• Diversification: Buy into an S&P 500 index fund and you'll immediately have your money spread across hundreds of America's biggest and best companies.
• Ease: If you buy into an index fund in exchange-traded fund (ETF) form, you'll simply buy shares like shares of stock, typically via your brokerage or retirement account.
• Outperformance: Index funds are no slouches when it comes to performance, either. According to the folks at S&P Dow Jones Indices, over the past 15 years, the S&P 500 index outperformed a whopping 89.5% of managed large-cap mutual funds, and it outperformed 84.3% over the past decade.

The S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods, and the past few years have featured higher-than-average returns.) So the table below shows how you might amass a fortune by investing $1,000 per month -- $12,000 per year -- over some long periods. I'm including several possible growth rates, too:

Calculations by author via moneychimp.com.

So which index fund(s) should you invest in? Well, you might just choose Vanguard's S&P 500 fund, as Buffett suggested. But you might, instead of or in addition to that, opt for an even broader index. Here are three funds to consider:

Data source: Morningstar.com, as of June 18, 2025.

Here's how broad these funds are:

• Vanguard S&P 500 ETF: S&P 500 index funds encompass 500 of the biggest companies in America, which together make up around 80% of the entire U.S. market.
• Vanguard Total Stock Market ETF: This ETF includes nearly all of the U.S. stock market, spreading your money across more than 3,500 stocks, not just 500. It includes lots of small companies, too.
• Vanguard Total World Stock ETF: This ETF encompasses roughly all the stocks in the world -- more than 9,700 stocks -- all in one easy, low-fee investment.

However you go about it, be sure you have a solid retirement plan in place and that you're executing it. Know that the average monthly Social Security benefit was just $2,002 as of May, which is about $24,000 for the year. Most of us will need to set up more income than that for our futures.

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 Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $676,023!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,692!*

Now, it’s worth noting Stock Advisor’s total average return is 793% — a market-crushing outperformance compared to 173% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 23, 2025

Selena Maranjian has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.

If you're seeking dividend income, bravo -- because dividends are hard to beat. Healthy and growing dividend-paying stocks will keep sending you cash, no matter whether the economy is booming or slumping. And that cash is handy not only for retirees. Younger investors can use it to just buy more shares of stock.

Image source: Getty Images.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

One dividend payer to consider is UnitedHealth Group (NYSE: UNH), with a 2.8% dividend yield. Imagine you're seeking $1,000 in annual income from UnitedHealth stock. How many shares must you buy?

Well, a little math is required: Take that $1,000 and divide by the recent annual dividend amount of $8.84. You'll arrive at 114, which is the number of shares you'll need to own.

With UnitedHealth stock recently trading for about $308 per share, those 114 shares will cost you $35,112 -- a hefty sum. You may not be able to afford 114 shares right now, but if you can just buy, say, 32 shares for just under $10,000, you'll be looking at about $283 in annual income -- and that dividend is likely to grow over time, too.

The current payout of $8.84 is up from $6.60 in 2022 and $4.32 in 2019. So you may still reach $1,000 in annual income, eventually, with just 32 shares.

An important question, though, is whether you should invest in UnitedHealth. There are some pros and cons to consider. UnitedHealth has been getting a lot of bad publicity recently, especially after the murder of its CEO last year. And the healthcare environment is likely to change, with the current administration in Washington cutting medical funding and possibly eliminating pharmacy benefits managers (PBMs). (UnitedHealth owns the Optum Rx PBM.)

On the plus side is UnitedHealth's low valuation, with its shares recently near a five-year low. (Its recent forward-looking price-to-earnings (P/E) ratio of 14 is well below the five-year average of 19.) Bulls see its problems as temporary and note that the company is still a giant, generating billions in free cash flow.

Should you invest $1,000 in UnitedHealth Group right now?

Before you buy stock in UnitedHealth Group, 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 UnitedHealth Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

Now, it’s worth noting Stock Advisor’s total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 9, 2025

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.

So you're looking for dividend income -- good for you! Dividend income can be a lifesaver in retirement and can provide cash for more investing when you haven't yet retired.

You might also be wishing you were an Nvidia (NASDAQ: NVDA) shareholder -- because, let's face it, who wouldn't want to be? The semiconductor company has been on a tear in recent years, growing like gangbusters and averaging annual gains of 75% over the past five years and 51% over the past 15 years.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

If you're thinking maybe you can combine your quest for dividend income and for Nvidia shares, you might want to think again, though -- because while Nvidia does pay a dividend, it isn't a very big one. It's currently a penny per share per quarter, totaling $0.04 per share over the course of a year.

So if you're looking for, say, $500 in annual dividend income, you'd need a lot of Nvidia shares. Divide $500 by $0.04, and you'll get 12,500 -- which is the number of shares you'd need to own to generate $500 per year in dividends. Here's the catch -- with shares recently at $142 apiece, buying 12,500 shares would cost you nearly $1.8 million. That could certainly be a terrific investment, but it's not the most efficient way to produce annual income of $500.

So look elsewhere for great dividend investments, but do consider investing in Nvidia. It used to be known as a maker of gaming-chip semiconductors, but it's now a titan in the world of data center chips (often used for artificial intelligence (AI) operations and even cryptocurrency mining). It may grow via acquisitions, too.

Better still, Nvidia's stock seems reasonably valued at recent levels. Its recent forward-looking price-to-earnings (P/E) ratio of 34, for example, is below its five-year average of 40. And its recent price-to-sales ratio of 24 is close to its five-year average, though that's quite a steep level.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, 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 Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

Now, it’s worth noting Stock Advisor’s total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 9, 2025

Selena Maranjian has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

"Enjoy the magic of compounding returns. Even modest investments made in one's early 20s are likely to grow to staggering amounts over the course of an investment lifetime." -- John C. Bogle

That's right, you can become a millionaire over time without pulling a six-figure salary, and maybe even if you earn an average income. Here's a look at how it can happen.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Modest incomes

Sure, it would be wonderful to be earning, say, $100,000 or $200,000 per year -- especially if you're married to someone with similar or greater earnings. But that's not the norm. The Bureau of Labor Statistics has reported that the median weekly earnings of full-time workers in America were $1,194, or $62,088 for the year, as of the first quarter of 2025.

If there are two people in a household earning that, we're looking at household income of $124,176. But in many cases, a household may have one full-time worker and a stay-at-home parent or a part-time worker.

As we proceed, let's imagine people or households earning between $60,000 and $100,000. And know that people with modest incomes -- such as teachers and secretaries and janitors -- can become millionaires, and that more than a few average folks have done so.

How money grows

Before delving into the nuts and bolts of compounding, it's useful to understand what's possible. So check out the table below, which shows how money can grow over time. It assumes 8% average annual growth because while the S&P 500 has averaged annual gains of close to 10% over many decades (not including inflation), how it will perform over your particular investing time frame is unknown.

Data source: Calculations by author.

You can see that with enough time, it's possible to amass a million dollars or more, only socking away $600 per month -- which is less than many people's car payments.

Note that if all you can save and invest right now is just $300 or $500, it's still very much worth parking those dollars in the stock market because your earliest invested dollars are your most powerful ones. Also, there's a good chance that your income will go up over time, due to your getting raises, better jobs, or potentially a more lucrative career.

Compounding at work

So here's how compounding works. Note that "compound interest" and "compounded growth" are somewhat different things. Compound interest refers to interest-bearing accounts, where you might earn, say, 5% on your $1,000 account one year, adding $50 and bringing your account value to $1,050, and then 5% the next year, adding $52.50 for a new total of $1,102.50. So the amount your account grows by keeps increasing as your total value increases.

That also happens to be compounded growth, which stock investments can give you. For example, if your portfolio is worth $200,000 and it grows by 10%, it will add $20,000 of value and be worth $220,000. If it grows by 5% the following year, it will add $11,000 and be worth $231,000. If it grows by 15% the next year, it will gain $34,650 and become worth $265,650. That's compounding at work.

How can you take advantage of compounding?

For compounding to work its magic, there are three important factors:

• How much money you invest, ideally regularly
• How much time your money has to grow
• How quickly your money grows

To get the most out of compounding, then, aim to:

• Invest as much as you can reasonably invest, ideally regularly. Increase the amount of your investments as you're able.
• Give your money as much time to grow as you can. If you're starting late and hoping to retire at, say, 65, consider delaying a few years to give your portfolio a little more time to grow.
• Invest effectively. Know that it's hard to beat the stock market for long-term growth, so consider investing in one or more low-fee index funds, such as the Vanguard S&P 500 ETF.

It's possible for many of us to retire as millionaires, given enough time. We can let compound interest help us get there with our short-term savings and the compounded growth of long-term stock investing can help with the rest.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

Selena Maranjian has 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.

Looking for an investment to add to your long-term portfolio? Consider the Vanguard S&P 500 ETF (NYSEMKT: VOO), which tracks the S&P 500. It's a smart buy for most investors at most times. Even Warren Buffett has recommended it, directing that most of the money he leaves his wife be put into an S&P 500 index fund.

Here's a closer look at the fund and what's in it. See what you think and whether it might be a good fit for you.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Meet the S&P 500

Let's start with the S&P 500, which is the index tracked by this index fund. The S&P 500 is a grouping of 500 of the biggest companies in the U.S. Here are its recent top 10 components, by weight, as of early June:

Source: Slickcharts.com. ETF = exchange-traded fund.

Note that if you combine the two Alphabet classes, the total weighting is 3.82%, which would put it in fifth place in the ranking. You might also note that all seven of the "Magnificent Seven" stocks -- Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Facebook parent Meta Platforms, and Tesla -- are held in the index in rather great proportion. Indeed, together, the top 10 holdings in the S&P 500 make up about a third of the entire index's value.

The S&P 500, like many stock indexes, is a market-capitalization-weighted index, meaning the biggest companies in it will have the most influence on it. That's evident just from the table above, which shows how much more influence Nvidia has than Tesla, and Tesla is the seventh-most influential component.

Remember, too, that there are 490 other stocks in the index, though most of them have relatively little influence on its movement individually. Other components include Costco Wholesale (recently ranked 18th), Starbucks (103), PayPal Holdings (150), Delta Air Lines (277), Ulta Beauty (357), and MGM Resorts International (485).

All together, these 500 companies comprise about 80% of the total value of the U.S. stock market. That's why the S&P 500 is often used as a proxy for the total U.S. stock market -- although doing so does omit thousands of smaller companies.

Why invest in an S&P 500 index fund?

So, why would you invest in a low-fee S&P 500 index fund, such as the Vanguard S&P 500 ETF? Here are some reasons.

For starters, it's a solid performer. The S&P 500 has averaged annual gains of close to 10% over long periods -- a rather powerful growth rate. Here's how your money might grow at that rate over time and at a slightly more conservative rate (because that 10% is not guaranteed):

Source: Calculations by author.

See? If you're diligent and stick with the program, you might amass a million dollars or more investing with just a simple index fund. On top of that, the S&P 500 index has outperformed a whopping 90% of managed large-cap mutual funds over the past 15 years. It's not easy to outperform an S&P 500 index fund.

One reason the S&P 500 index performs so well is that it's not comprised of the same 500 stocks for years and years. It gets adjusted over time. Now and then, some stocks are ejected from the index, and others are added. The ejected ones have likely been struggling or, at the very least, haven't been growing briskly, while the new components have grown enough to merit consideration for the index.

There are more reasons to love S&P 500 index funds: They give you instant diversification, spreading your dollars across technology companies (specializing in cloud computing, semiconductors, cybersecurity, and more), financial services companies, healthcare companies, consumer products companies, energy companies, retailers, and much more. You'll essentially be invested in the American economy.

Consider the Vanguard S&P 500 ETF

So, consider the Vanguard S&P 500 ETF. It's an exchange-traded fund (ETF) -- which is like a mutual fund but trades like a stock, allowing you to buy one or many shares through your brokerage account. It's a smart buy at just about any time, and many people will be best served by simply adding money to it over many years.

Vanguard is known for charging low fees, and this ETF sports an expense ratio (annual fee) of just 0.03%, meaning you'll be charged $0.30 annually for every $1,000 you have invested in the fund. Here's how the ETF has performed on an annualized basis over some recent periods:

Source: Data from Vanguard.com as of May 31, 2025. ETF = exchange-traded fund.

So, give the Vanguard S&P 500 ETF some serious consideration for a berth in your long-term portfolio. (Remember that short-term money that you may need within five or so years is best kept out of stocks.)

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 Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $868,615!*

Now, it’s worth noting Stock Advisor’s total average return is 792% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 2, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, PayPal, and Starbucks. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, PayPal, Starbucks, Tesla, Ulta Beauty, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and Delta Air Lines and recommends the following options: long January 2026 $395 calls on Microsoft, long January 2027 $42.50 calls on PayPal, short January 2026 $405 calls on Microsoft, and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.

To fans of the television show Shark Tank, Kevin O'Leary is familiar, as he's a panelist on the program that showcases business ideas. He's a Canadian entrepreneur, who started the Softkey Software Products company. It saw great success and later bought the Learning Company, before being bought itself by the toy company Mattel.

O'Leary has ideas not only about entrepreneurship, but also retirement -- so check out some of his thoughts on that and see whether they might help you in your own retirement planning. They're chiefly drawn from his 2012 book, Cold Hard Truth on Men, Women and Money: 50 Common Money Mistakes and How to Fix Them.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Debt and retirement

If you're carrying any debt, especially high-interest-rate debt (such as debt from credit cards), it's a good idea to pay it off or shrink it considerably before retiring. O'Leary notes: "If you're heading toward retirement with debt, now's the time to budget like you've never budgeted before. I mean it."

Paying down debts will free up more income that you can live off in retirement -- and it can give you more peace of mind and help you sleep better, too, if you don't have big mortgage payments or hefty credit card bills hanging over you in your golden years.

Your post-retirement income

O'Leary questions one common rule of thumb -- that retirees should plan to need 65% of their pre-retirement income in retirement -- saying:

This assumes that you will want to maintain roughly the same standard of living that you enjoyed when you worked a stressful life, working 40 hours a week away from home... Of course, you ate out a lot, bought hardcover books to read on the subway, and got a brand-new coat every winter... But in retirement, you won't need to finance your lifestyle in the same way. There will be no commuting, fewer lunches out, and lower dry-cleaning bills.

Still, he notes that each of us should be trying to come up with the most realistic estimate of how much we'll need in retirement instead of relying on any one rule of thumb: "If you don't think you can go days without spending money on useless crap like magazines, gum, or coffee, then you're going to be in trouble a few years into retirement..."

For context, know that as of March, the average monthly Social Security retirement benefit was $1,997 -- about $24,000 for the year. Of course, if you earned more than average, you'll collect more than average. (To get a good estimate of how much you can expect from Social Security, set up a my Social Security account at the Social Security Administration (SSA) website.)

So if you end up estimating that you'll need $80,000 annually in income in retirement, figure out how you'll get that. Here's what such a retirement income plan might look like:

• Social Security: $30,000
• Dividend income: $25,000
• Pension income: $15,000
• Selling off part of your stock portfolio: $10,000

It's good to have multiple income streams for your retirement, and yours could look different from the example above. You might, for example, have rental income or annuity income, or income from a part-time job.

Save more, spend less

If we want to be able to afford the retirement we hope for, O'Leary offers some good advice: "...[S]pend those last few working years socking away as much money as you can, but also use those years to practice living on a lot less, lowering your expectations, and cultivating disciplined spending habits..."

He also says: "Get a part-time job, too, while you're at it and while you're still spry enough to handle it." It's smart to save aggressively, and you might be able to do so now by shrinking your spending -- and perhaps by getting a side gig for a few or many years.

Also consider coming up with a household spending budget. Using a budget in retirement is a smart move, too, as it can help you not spend more than you should. You may even keep a part-time job for your first few years of retirement. Here's how your savings might grow over time:

Data source: Calculations by author.

When to retire -- and when not to retire

So -- when should you retire? O'Leary has a perfect answer: "Don't retire until you can afford it. Throw out your plan for freedom at 55 or even 65... If you have debt, you need your job, so you have to do everything in your power to keep it."

Only retire when you can afford it. Make sure you've set up a portfolio that you can draw on or collect dividends and/or interest payments from. Make sure you've set up sufficient income streams to support you in retirement. Keep inflation in mind and prepare for it. Don't forget healthcare costs, either, as they can be substantial. Finally, know that there are ways to increase your Social Security benefits.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Trying to keep up with the Joneses isn't usually a good idea. But trying to keep up with -- or outperform -- others in your age group is a fine idea when it comes to saving for retirement.

Here is a look at average 401(k) account balances for those aged 65 and older, along with some younger cohorts, via Vanguard.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Data source: How America Saves 2024, Vanguard.

See? Those nest eggs are still on the small side. Even $272,588 isn't going to support anyone very well over, say, a 25-year retirement -- it's not even $11,000 annually, and by year 25, inflation may have shrunk the buying power of those dollars by 50% or more.

Meanwhile, we really should be looking at the median numbers, and they're even lower! As a reminder, medians reflect the midpoint value in a series of numbers, while averages are just... averages, potentially skewed by ultra-high or low outliers. For example, imagine this series of numbers: 8, 2, 7, 31, 7. To average them, add them together and divide by five. The average is 11. But arrange them in order -- 2, 7, 7, 8, 31 -- and the middle value -- the median -- is 7. Median numbers can often give you a more representative idea of a typical value in the group of numbers.

So if you're not yet retired and you're behind in your saving and investing for retirement, what can you do? Well, start by saving more and investing long-term dollars effectively -- perhaps in a simple, low-fee index fund. Consider taking on a side gig for a while, to earn more. You might also delay retiring by a few years, while delaying claiming Social Security, too. (For most folks, the best strategy is to wait to claim until age 70.)

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Could investing in a simple, low-fee S&P 500 index fund today set you up for life? You may not want to know the answer. You may prefer to hunt for exciting growth stocks instead. But I'm here to tell you that regularly plunking meaningful sums in an S&P 500 index fund can do wonders over long periods.

Even Warren Buffett has endorsed S&P 500 index funds, stipulating in his will that much of what he leaves his wife should go into one. Here's a look at why you might consider investing in an S&P 500 index fund, too.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Meet the S&P 500 index

An S&P 500 index fund is an index fund that tracks the S&P 500 -- an index (a grouping) of 500 of the biggest companies in the U.S. The fund will hold roughly or exactly the same stocks in roughly the same proportion, aiming for roughly the same performance -- less fees. And there are some very low fees out there.

Here are the recent top 10 components in the index by weight:

Data source: Slickcharts.com, as of April 16, 2025.

It's worth noting that this index is a market-capitalization-weighted one, meaning that the biggest companies in it will move its needle the most. For example, you can see in the table above that Microsoft's weighting is about four times that of Tesla, so Microsoft's stock-price moves will make a much bigger difference in the index than will Tesla's. Of course, these are still the top 10 components. General Mills is also in the index, recently in 255th place, and with a weighting of just 0.07%. Toy company Hasbro, in 488th place, recently had a weighting of 0.02%.

Altogether, these 500 companies make up about 80% of the total value of the U.S. stock market. Thus, the S&P 500 is often used as a proxy for the market. It's mainly made up of giant, large, and medium-sized companies, though. If you want a more accurate proxy, you might opt for a broader index fund, such as the Vanguard Total Stock Market ETF (NYSEMKT: VTI), which aims to include all U.S. stocks, including small and medium-sized ones, or the Vanguard Total World Stock ETF (NYSEMKT: VT), encompassing just about all the stocks in the world.

Why invest in an S&P 500 index fund?

Here's a top-notch S&P 500 index fund to consider -- the Vanguard S&P 500 ETF (NYSEMKT: VOO). Its expense ratio (annual fee) is a mere 0.03%, meaning that for every $1,000 you have invested in the fund, you'll pay an annual fee of... $3.

Why invest in such a fund? Well, because it can perform really well over time and it's way easier to just keep adding money to it than to spend time studying investing and scouring the stock market for the best investments. Instead of looking for a few needles in a haystack, buy the haystack!

Owning shares of an S&P 500 index fund means you'll quickly own (small) chunks of 500 of the biggest companies in America -- and as some companies grow and others shrink over time, the index will be adding and dropping components accordingly.

The table below shows how big a nest egg you might build over time in an S&P 500 index fund, if your money grows at 8%. For context, the S&P 500 has averaged annual gains of around 10% over many decades -- including dividends and not including the effect of inflation. So using 8% is a mite conservative.

Source: Calculations by author.

If that's not convincing enough, know that you probably can't do as well with some other, managed large-cap stock mutual fund. The S&P 500 index has actually outperformed most such funds, which tend to be run by highly trained financial professionals working hard to outperform the index. Over the past 15 years, for example, the S&P 500 bested 89.5% of all large-cap funds.

Whether you opt for a low-fee S&P 500 index fund or not, be sure to have a solid retirement plan, and to be saving and investing in order to have a comfortable financial future.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 781%* — a market-crushing outperformance compared to 149% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of April 21, 2025

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool recommends Broadcom and Hasbro and 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.

If you're making good use of tax-advantaged retirement accounts such as IRAs and 401(k)s, good for you! They can be powerful helpers as you save and invest for retirement. You need to be aware, though, that once you reach a certain age, some of those accounts will make you take Required Minimum Distributions (RMDs).

Here's a look at what RMDs are, along with several critical things to understand about them. If you mess up with RMDs, the penalties can be quite costly.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Meet the Required Minimum Distribution

Our friend -- the Internal Revenue Service (IRS) -- requires people to take annual RMDs from accounts such as traditional IRAs, SEP IRAs, and SIMPLE IRAs once they reach the age of 73. When you do so, that income will count as taxable income to you -- so it's smart to account for it when you're devising your retirement plan. Failing to have a retirement plan is a big mistake. Here are seven others, all related to RMDs.

1. Missing the RMD deadline

First, don't be late! You have until April 1 of the year after you turn 73 to take your first RMD. After that, though, the deadlines fall on Dec. 31. So your second RMD will be due on Dec. 31 of the year you turn 74.

You might want to take your first RMD in the year you turn 73. Otherwise you face having to take both your first and second RMD in the same year, the year you turn 74. That can boost your taxable income a lot for that year.

2. Withdrawing the wrong amount -- or not withdrawing at all

When taking your RMD, you'll want to withdraw the correct amount -- at least. You can calculate your RMD by referring to an RMD table, but many good brokerages will calculate your RMDs for you and will often let you set up automatic withdrawals. That can help you avoid missing the deadline, though it's also smart to check now and then to ensure that your brokerage has indeed scheduled your RMD.

If you fail to take your full RMD on time, you'll likely pay a steep price. The penalty for not taking them on time is 25% of the amount you failed to withdraw on time. Fail to take out $6,000, and you may face a $1,500 penalty! (You may be able to pay a smaller penalty if you notice that you just missed the deadline and take action quickly.)

3. Not understanding how RMDs from IRAs and 401(k)s work

Here are some things to know about RMDs from various types of accounts:

• With Roth IRAs and Roth 401(k)s, you do not need to take RMDs.
• With traditional IRAs and with 403(b) accounts, if you have more than one account, once you total your RMDs from all of your accounts, you can withdraw that total sum from just one or from multiple accounts. So if your RMD for the year is $6,000, you could take all $6,000 from just one of your IRAs, or $2,000 from one and $4,000 from another, or some other combination.
• With traditional 401(k)s, you must take the RMD required from each one, and you can't mix and match as you can with IRAs.
• If you're still working, you may not have to take your RMD from your workplace's retirement account until you retire.

4. Thinking your spouse's RMD counts as your own

If you're married and both you and your spouse have RMDs to take each year, you can't withdraw from one of your accounts to satisfy the requirement for the other spouse. So, for example, if your RMD is $6,000 and your spouse's is $4,000, you can't take $10,000 from your account and consider theirs satisfied. Each of you will need to withdraw your own RMDs from your own account(s).

5. Donating to charity without considering a qualified charitable distribution (QCD)

If you donate to charity, you may be able to avoid being taxed on some or all of your RMD if you execute a "qualified charitable distribution" (QCD). Doing so means you would have funds sent directly from your retirement account to a qualifying charity. You cannot just withdraw the money and donate it and then expect to pay no taxes on the withdrawal -- the sum needs to go directly to the charity. There are some other rules, too, so read up on this if it's of interest to you.

6. Spending your RMD when you don't need to do so

Some people mistakenly think they have to take their RMD and spend it. That's not the case. You can always reinvest that money right away, parking it in shares of stock, certificates of deposit (CDs), or wherever you want.

7. Not keeping up with RMD changes

Finally, be sure to keep up with RMD rules, because they can change sometimes. For example, according to some new rules, some beneficiaries must take RMDs from inherited IRAs, depleting them within 10 years. This rule doesn't apply to spousal heirs, but does apply to most heirs who were not married to the IRA owner who died -- if that IRA owner had reached age 73 before dying.

The more you know about retirement accounts, RMDs, and tax matters, the more you may be able to save.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Many of us are at least occasionally dreaming of retirement, looking forward to days when we won't have to clock in and work for someone else -- days when we can do more of what we want to do.

If you're counting down to your retirement and are looking forward to collecting Social Security benefits, make sure you're ready to do so. Here are some questions you might ask yourself.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Image source: Getty Images.

1. Do you qualify for Social Security?

Let's start with some basics. Make sure you qualify to collect benefits. The bar is admittedly low. To be eligible for benefits, you need to earn a total of 40 credits, and you can earn up to four per year -- so you'll need to work and earn money for at least 10 years.

The value of each credit is updated annually, and for 2025, it's $1,810 -- which amounts to just $7,240 over the course of a year. Note that while you need to work at least 10 years, you'll want to aim for 35, because your benefit amount is based on your earnings in the 35 years in which you earned the most. Work for fewer years and some zeroes will get factored into the calculation.

2. Are you at least 62 years old?

Sixty-two is the earliest age at which you can claim your retirement benefits. Know that each of us has a "full retirement age" at which we can start collecting the full benefits to which we're entitled based on our earnings -- and that age is 66 or 67 (It's 67 for those born in 1960 or later.)

While you can turn on the Social Security spigot at age 62, doing so will result in smaller checks, though many more of them than if you claim late. If you delay starting to collect checks, they'll plump up by 8% for each year beyond your full retirement, until age 70.

The decision regarding when to claim your benefits is a big one, so think it through carefully. One study found that for 57% of people, waiting until age 70 will deliver the most total benefits.

3. Do you know how much to expect?

It's important to know how much to expect from Social Security, so that you can plan your retirement accordingly. Yes, the average monthly retirement benefit for retired workers was just $1,981 as of February -- only around $23,750 per year -- but you may well be in line to collect more.

To get a much clearer idea of how much you can expect from Social Security, set up a my Social Security account at the Social Security Administration (SSA) website. Then you'll be able to click in any time to see the latest estimates of your future benefits based on the SSA's records of your earnings.

If you don't like what you see, you're in luck -- because there are multiple ways to increase your Social Security benefits, beyond delaying claiming them. For one thing, while you're still working, try hard to earn as much as possible, even if that means a side gig for a while.

4. Are you able to retire?

It's also important to look beyond Social Security at your bigger financial picture, to see if you can retire. Don't assume that your nest egg will be sufficient until you crunch some numbers. For some people, retiring with a million dollars will be enough, for others it may be much too little -- or too much.

If you find that you're behind in saving and investing for retirement, there are several strategies to consider -- including delaying your retirement a bit.

5. Have you coordinated with your spouse?

If you're married, have you coordinated a Social Security strategy with your spouse? You might, for example, have the higher earner between you delay until age 70, in order to maximize their benefit. The lower earner might start collecting early, late, or somewhere in between -- whatever makes sense given your financial situation.

Why do this? Because when one spouse dies, the survivor will be able to collect whichever benefit is larger for the rest of their life.

6. Have you seen the news?

Finally, here's a somewhat new concern regarding Social Security. Not so long ago, I might simply have offered a warning that the program's surplus is turning into a deficit and if nothing is done to strengthen Social Security, its trustees estimate that beginning in 2035, beneficiaries will receive only 83% of what they're due. Yikes. (There are multiple ways to fix this problem, though.)

Now there's a new concern -- the Trump administration, which is making moves to change Social Security in ways that may leave it weaker, sooner. So it's worth keeping up with developments in the news as they may affect your future financial security. The more you know, the better your retirement plan may be.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.