Can I only invest in the S&P 500?
I’m often saying to invest in the S&P 500, but this is because most of you are investing in only a couple companies, some of you own only one stock and that’s the company you are employed at. However, you should not be only investing in the S&P 500 because diversification is the name of the game in personal finance. You don’t want all your eggs in one basket.
Since its inception the S&P 500 has averaged 11.8% annually.
The issue with the S&P 500 is that you are overexposed to large cap companies in the USA. You actually want some exposure to international markets. The S&P 500 and international stocks take turns outperforming each other. People often cite the years 2001 to 2009 when S&P 500 returns were averaging a little more than 1% per a year as a reason to get international exposure.
Target date funds are technically more diversified than the S&P 500. If you are purchasing them through your workplace, the expense ratio is likely going to be higher than what you can get on your own. However, the expense ratios wherever you may buy them is still quite low.
It can be argued that the S&P 500 will outperform the target date fund over the long term. The expense ratio of the S&P 500 will almost always be lower than that of a target date fund. One of the biggest things I drill into you is that there is not a whole lot you can control, but you can control the investment you choose based on the expense fee.
Works Cited:
https://www.reddit.com/r/personalfinance/comments/13v5m2q/is_it_okay_to_only_invest_in_sp500/
Tags:
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