Why you shouldn't just invest in the S&P 500?
Importantly, just because the S&P 500 has delivered phenomenal returns in the past, doesn't mean that you should only invest in this asset. Even those who have already benefited from the past 10-year returns could fall into the trap of creating unrealistic expectations about what the future might hold.
The S&P 500 is all US-domiciled companies that over the last ~40 years have accounted for ~50% of all global stocks. By just owning the S&P 500 you miss out on almost half of the global opportunity set which is another ~10,000 public companies.
Disadvantages of Using the S&P 500 as a Benchmark
Also, the index contains only larger market-cap companies from the U.S.4 In contrast, investors may own small-cap or foreign companies in their portfolios. Using the S&P 500 as a benchmark may be an inaccurate measure of portfolio return for individual investors.
Stocks of small-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Bonds are subject to interest rate, inflation and credit risks.
Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500, then you would be sitting on a cool $1.2 million today.
For investors who want to get in on the action, the good news is that investing in a fund that tracks the S&P 500 index is an easily accessible strategy. But experts say it also deserves a word of caution: Past performance is not indicative of future returns.
Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance. Everybody tries to beat it, but few succeed.
The index has risks inherent in equity investing: The S&P 500 has risks inherent in equity investing, such as volatility and downside risk.
Is S&P a safe long term investment?
Ever since the S&P 500 index was devised, it has built an impeccable track record of earning positive returns over time. In fact, research shows it's actually harder to lose money with the S&P 500 than it is to make money if you keep a long-term outlook.
Since 1957, the S&P 500 has only fallen more sharply than 19.4% in three years: 1974, 2002, and 2008. Each of those downturns was precipitated by major economic headwinds. In 1974, gasoline shortages and double-digit inflation rates caused the S&P 500 to plunge 29.7%.
Buying into S&P 500 index funds or ETFs
Another option is a low-cost S&P 500 mutual fund or ETF, both of which mirror the index and typically carry less risk than investing in individual stocks.
“In my view, for most people, the best thing to do is own the S&P 500 index fund,” Buffett said at Berkshire's 2020 annual meeting. Buffett's thinking here is straightforward. Most non-professional investors (and even many professional stock-pickers) have very little chance of outperforming the market.
Analysts expect overall S&P 500 earnings to rise 9.5% in 2024 after increasing around 4% in 2023, LSEG data showed.
Assuming an average annual return rate of about 10% (a typical historical average), a $10,000 investment in the S&P 500 could potentially grow to approximately $25,937 over 10 years.
| Discount Rate | Present Value | Future Value |
|---|---|---|
| 6% | $1,000 | $3,207.14 |
| 7% | $1,000 | $3,869.68 |
| 8% | $1,000 | $4,660.96 |
| 9% | $1,000 | $5,604.41 |
A $10,000 investment in Tesla back in April of 2014 would now be worth roughly $121,460 right now -- and that's even factoring in the stock's pullback this year.
How a monthly investment of $300 could grow into $618,900. The S&P 500 returned 164% over the last decade, or about 10% per year. At that pace, $300 invested monthly in an S&P 500 index fund would be worth about $60,000 in one decade, $215,400 in two decades, and $618,900 in three decades.
As you will see, the future value of $40,000 over 20 years can range from $59,437.90 to $7,601,985.51.
How much would $1000 in 1934 be worth today?
$1,000 in 1934 has the same purchasing power as $22,450.75 in 2024. Over the 90 years this is a change of $21,450.75. The average inflation rate of the dollar between 1934 and 2024 was 2.29% per year.
The result is the number of years, approximately, it'll take for your money to double. For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Our recommendation for the best overall S&P 500 index fund is the Fidelity 500 Index Fund. With a 0.015% expense ratio, it's the cheapest on our list. And it doesn't have a minimum initial investment requirement, sales loads or trading fees. Over the last 10 years, FXAIX has returned an annualized 12.02%.
The S&P is a float-weighted index, meaning the market capitalizations of the companies in the index are adjusted by the number of shares available for public trading. Because of its depth and diversity, the S&P 500 is widely considered one of the best gauges of large U.S. stocks, and even the entire equities market.
So, if you are looking to own a more diversified basket of stocks, the S&P 500 will be the right fit for you. However, those who are comfortable with the slightly higher risk for the extra returns that investing in Nasdaq 100 based fund might generate will be better off with Nasdaq 100.
