If I Could Only Buy and Hold 1 ETF for the Next 20 Years, Here's Where I'd Invest

Peter Lynch, who led Fidelity's Magellan Fund to beat the S&P 500 (SNPINDEX: ^GSPC) for over a decade, once said: "Everyone is a long-term investor until the market goes down." Like many of Wall Street's other top investors, Lynch believed that many investors lacked the patience and fortitude to hold their stocks through brutal market crashes.

But if you had held the S&P 500 for several decades and tuned out the near-term noise, you'd actually have outperformed most individual stocks and actively managed funds. So if I could only buy a single exchange-traded fund (ETF) in this choppy market to hold for the next 20 years, I'd simply buy Vanguard's S&P 500 ETF (NYSEMKT: VOO).

Why is VOO still the best long-term investment?

Vanguard launched its first S&P 500 index fund 50 years ago, but it could only be traded once per day. The ETF version, which could be traded actively during market hours like a regular stock, was launched in 2010. It charges a low expense ratio of 0.03%.

Vanguard's founder, John Bogle, believed it made more sense to simply invest in the entire S&P 500 because most money managers couldn't beat the benchmark index over the long term. S&P Global (NYSE: SPGI) also rebalanced the index quarterly by adding new winners and cutting the losers, so it always included the top 500 companies in the United States. Bogle famously told investors: "Don't look for the needle in the haystack. Just buy the haystack."

The S&P 500 has generated an average annual total return of about 10% since its inception in 1957. During those seven decades, the U.S. endured ten major U.S. recessions and engaged in more than a dozen overseas military conflicts. Therefore, the S&P 500 will likely bounce back from the next bear market and head even higher as the U.S. economy expands.

However, investors should be prepared to ride out some steep drawdowns. The past three market crashes shook out many investors, with the S&P 500 experiencing peak-to-trough declines of 57% from 2007 to 2009, 34% in 2020, and 25% in 2022.

But if you can stay calm during those downturns -- and convince yourself to accumulate even more shares as other investors rush for the exits -- then you'll reap some massive long-term gains. VOO has generated an 833% total return since its 2010 inception, and it could easily head higher over the next two decades, regardless of near-term fluctuations.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.