Strategically Investing in the S&P 500 Index

The S&P 500 index could be referred to as the benchmark for investing returns. In order to justify managing your own money or paying someone else, your returns have to beat this index otherwise you’re better off putting your money in a low fee S&P 500 index fund(Vanguard, Spyder).

The chart below indicates if you had put your money in at anytime in the last 90 years(except in the last couple months) you would have seen a return from your investment. There were better years than others but as long as you held you would have made money.  

s&p 500 index
Although it’s next to a sure thing that you will make money if you’re in it for the long term you probably wouldn’t want to pile in all of your money at once unless if the market has took a huge beating like in early 2009.

sp-500-historical-chart-data-2018-03-21-macrotrends

If you had piled in all of your money at the peak of the tech boom in the year 2000 you would have seen your investment get cut by close to half at the bottom of the tech bust the following year.

That decade wasn’t the best for a long term investor due to the Great Recession that followed in 2008. The index rose back to its high after the tech bust only to get slammed even worse. It’s like falling madly in love only to get heartbroken and then have it happen all over again soon after you recovered.

If you weathered the storm until today though you’re in love again. In 2001 the index at its peak was at around 1500 points and in 2018 it’s been in the 2500-2800 range.

Instead of piling in all at once a more prudent strategy would be to put smaller portions every month so that you hedge against having all of your money invested at the top. Sure, if you go all in at once you’ll more than likely see your investment above water one day but in the case presented above you would have had to wait until 2013 to see a gain from your 2001 investment. That sucks.  

If the index has taken a bad beating already though it’s probably a strategic move to put in more money than you usually would. Buying at the bottom is how you get the largest returns.

                                                                                                                        

                                     

How to Invest in the Stock Market

A big reason why so many people don’t invest their money in the markets is because it’s something you can put off and not hate yourself for until way down the road. Many have no qualms with owning real estate because it’s almost a tradition plus you need somewhere to live anyway. Just as many celebrate the idea of marriage even with the significant failure rate. Statistically your odds at winning in marriage are about 10 percentage points higher than a typical casino game. Do you feel lucky chump? Well, do you?

Fortunately, the S&P 500 index does not care if you do not take out the garbage or if you gain 70 pounds. Like marriage, it too has its ups and downs but if you stick it out you will be victorious in the end if the last 90 years has anything to say about it.

s&p 500 index

2001 and 2008 were rough years but we pulled through baby!

Questions?

What if I lose all of my money?

The S&P 500 is comprised of 500 of the largest publicly listed companies companies in America. If they fail life is over anyway.

Sure, it’s all been good up until now but how do I know the trend will continue?

The truth is you don’t know for sure but this is almost as close as a guarantee you’re going to get. There are no guarantees in life but you have to side with the most rational decisions.

How much am I going to get back in 30 years?

The answer to this is unknown but you can reasonably expect somewhere in the neighborhood of an average of 5 to 10% annually. Much of this depends on how you invest into it.

The data below shows the annual returns of the index since 1988. As you can see there are many more positive years than negative.

Screenshot 2018-03-26 at 8.04.29 PM
If this hasn’t been compelling enough because I’m just some schmuck blogger then you can put your trust in Warren Buffett. He advises that 99% of people should invest in a low cost S&P 500 index fund such as a Vanguard fund and they’ll do great in the long run. Also, when he dies he has planned for 90% of his money to be put in such a fund for his wife.