If you know nothing about investing, this 1 ETF can make up most of your portfolio

You’ve probably heard time and time again that it’s important to create a diversified portfolio for retirement. While that’s good advice, not everyone is comfortable investing in the stock market. And that’s understandable.

There are certain things to look for in a company before buying its stock. You want to make sure it manages its cash flow well and isn’t overloaded with debt. You want to make certain it has a competitive edge and a strong management team. And you want to make sure its share price is worth paying given the value it offers.

If you don’t know much about investing, it can be difficult to figure out which stocks to put your money into. Thankfully, though, there’s a way around that. One specific investment, in fact, could be your ticket to a diversified portfolio even if you consider yourself pretty clueless about investing as a whole.

It pays to put your money into the S&P 500

The S&P 500 index consists of the 500 largest publicly traded companies, and it’s often used as a benchmark for how the market is performing overall. If you don’t know much about investing and aren’t particularly eager to learn, it’s not a bad idea to put the bulk of your portfolio into an S&P 500 ETF, or exchange-traded fund.

One ETF you may want to look at in particular is the Vanguard S&P 500 ETF (VOO). This ETF invests in S&P 500 companies with the goal of matching the index’s performance.

One thing that makes the Vanguard S&P 500 ETF so attractive is its super-low expense ratio of just 0.03%. Since the fund’s inception, VOO has virtually matched the performance of the S&P 500, making it an easy way to diversify without having to do a lot of work.

Should your entire portfolio be in VOO?

While there’s nothing wrong with having most of your investment portfolio consist of the Vanguard S&P 500 ETF, you may want to branch out into other investments for a couple of reasons.

First, even if you’re nowhere close to being ready to retire, it’s still a good idea to have a small portion of your portfolio in a more conservative investment, like bonds or a bond ETF.

Also, while VOO could virtually help you match the performance of the S&P 500, it won’t help you beat it. That’s not the goal. Choosing a few key stocks on an individual basis could help you score better returns in your portfolio overall. And while that will require research, you only have to do it a few times over.

Another thing to recognize is while S&P 500 ETFs like VOO may pay dividends, they’re not going to be very generous. Dividends are a great way to generate continuous income in your portfolio — income you can reinvest while you’re still trying to build wealth.

Just as importantly, dividends can serve as a hedge against market downturns. The reason is that even though the value of your portfolio might decline in a bear market, if your investments are paying dividends, that income helps to offset losses.

Overall, though, it’s not a bad idea to rely on the Vanguard S&P 500 ETF to carry your portfolio. It could save you a lot of legwork and help you feel more confident as a relatively clueless investor.