Is S&P 500 ETF a good long term investment?
Investing $100 a month into an S&P 500 ETF can be a sound long-term investment strategy, especially for those with a lower risk tolerance. The S&P 500 has historically provided average annual returns of around 10%, which means that $100 invested each month could grow to a significant amount over time.
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.
If you don't want to put a lot of effort into managing your investments, then S&P 500 ETFs are a good solution. But if you're willing to do the work, then you might do even better in the long run with a portfolio of hand-picked stocks (although, the odds are against you).
Vanguard S&P 500 ETF (VOO)
Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually. Who is it good for?: Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.
The S&P 500 returned 345% over the last two decades, compounding at 7.7% annually. But with dividends reinvested, the S&P 500 delivered a total return of 546% over the same period, compounding at 9.8% annually. Investors can get direct, inexpensive exposure to the index with a fund like the Vanguard S&P 500 ETF.
Placing all of one's assets in an index such as the S&P 500, which is concentrated in large-cap US companies, is a high-risk and volatile strategy. When working with clients, we gauge each individual's capacity for accepting risk.
The S&P 500 Index is considered a gauge of the U.S. economy. It is a broad-based measure of large corporations traded on U.S. stock markets. Passively holding the index over longer periods of time often produces better results than actively trading or picking single stocks.
It might actually lead to unwanted losses. Investors that only invest in the S&P 500 leave themselves exposed to numerous pitfalls: Investing only in the S&P 500 does not provide the broad diversification that minimizes risk. Economic downturns and bear markets can still deliver large losses.
If the S&P 500 outperforms its historical average and generates, say, a 12% annual return, you would reach $1 million in 26 years by investing $500 a month.
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.
Is it OK to hold ETF long-term?
Nearly all leveraged ETFs come with a prominent warning in their prospectus: they are not designed for long-term holding. The combination of leverage, market volatility, and an unfavorable sequence of returns can lead to disastrous outcomes.
How long should you keep ETFs? It depends on your investment goals and how long you want to stay invested in ETFs. While a long-term ETF holding for more than three years can get you better returns, short-term returns can also be more for some ETFs.
Hold ETFs throughout your working life. Hold ETFs as long as you can, give compound interest time to work for you. Sell ETFs to fund your retirement. Don't sell ETFs during a market crash.
In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500 (^GSPC 0.63%), then you would be sitting on a cool $1.2 million today. That equates to a total return of 120,936%. The stock? None other than Gap (GPS 4.66%).
| | Ticker | 10-Year Performance |
|---|---|---|
| 1 | GBTC | 12,809% |
| 2 | SMH | 1013.7% |
| 3 | XLK | 555.7% |
| 4 | IXN | 482% |
S&P 500 10 Year Return is at 174.1%, compared to 171.8% last month and 162.1% last year. This is higher than the long term average of 114.2%.
Can't the S&P 500 lose money? As with any investment, S&P 500 index funds carry the risk of losing money, particularly in the short term. In 2022, for instance, the S&P 500 fell by more than 18%. But historically, the S&P 500 has always recovered from its losses.
Lack of Global Diversification
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.
Analysts expect overall S&P 500 earnings to rise 9.5% in 2024 after increasing around 4% in 2023, LSEG data showed. But valuations have risen along with stock prices.
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.
Will S&P 500 go up in 2024?
As for how the stocks will perform in the coming election year, 2024 forecasts for the S&P 500 vary widely, but the consensus seems to fall in the range of 8%-9% gains, a little under the index's historical average of about 10%.
SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest and oldest ETF in the USA. SPDR is a trademark of Standard and Poor's Financial Services LLC, a subsidiary of S&P Global.
Bottom line. ETFs make a great pick for many investors who are starting out as well as for those who simply don't want to do all the legwork required to own individual stocks. Though it's possible to find the big winners among individual stocks, you have strong odds of doing well consistently with ETFs.
| Period | Average annualised return | Total return |
|---|---|---|
| Last year | 28.0% | 28.0% |
| Last 5 years | 16.0% | 109.9% |
| Last 10 years | 15.5% | 321.7% |
| Last 20 years | 10.7% | 657.2% |
- Motilal Oswal Nasdaq 100 FOF Scheme.
- Bandhan Nifty 50 Index Fund.
- UTI Nifty 50 Index Fund.
- ICICI Prudential Nifty 50 Index Fund.
- Nippon India Index S&P BSE Sensex.
