4 Top Reasons To Invest In The S&P 500

I recently came across the 2014 Fidelity study which showed that the people who were the best investors were the ones that completely forgot that they had an account. Knowing this – we can be our own worst enemies when it comes to investing for the future. It is human instinct to believe that we can invest in a better way or are smarter than everyone else…

Here is the bitter truth…it is impossible to know what the stock market will do in the next minute, the next hour, the next day or the next week! In fact, pick any future time period. It is impossible!

So why would you invest in anything on the stock market that is anything other than the 500 largest companies in the United States? In fact, just by owning these 500 largest companies in the United States you would also – by extension – have exposure to the rest of the World given the fact that the majority of these companies do a significant amount of business overseas.

So, why bother with an expensive money manager, financial advisor, and the expensive products that come with them? It’s because despite you now knowing it’s impossible to predict the future you still believe that you can…

So say it 3 times out loud…I can’t beat the market…I can’t beat the market…I can’t beat the market!  

Why The S&P 500?

In the great book by Burton Malkiel “A Random Walk Down Wall Street” he writes, “Stock investors can do no better than simply buying and holding an index fund that owns a portfolio consisting of all the stocks in the market.” The S&P 500 represents the 500 largest and most profitable companies in the U.S. These 500 companies make up anywhere between 78% – 80% of the total U.S. stock market. There are certainly other viable potential portfolios you can select but there is something to be said for simplicity. 

As someone who believes in the power of technology and the impact that fintech startups can have on personal finance, it can be easy to make things complicated. Instead, I try to always make sure that whatever effort I am putting forward in new technology that serves a specific purpose. The S&P 500 is as simple, straightforward and as easy as it gets!

• Warren Buffett proved it works and wants his loved ones to do the same!
• It is close to the cheapest option to own with the largest S&P 500 exchange traded funds carrying very low expense ratios.
• Diversification – The S&P 500 contains companies from all of the major sectors of the economy.
• I am a long-term investor which has its benefits vs. being a short-term investor.

If you watch the following great talk by JLCollins at Google and fast forward to the 45:50 mark you will see just why the S&P500 is a great option. By the way, VTSAX which JLCollins also recommends and invests in is also a good solution for certain investors.

How Did I Figure Out Which S&P 500 Fund Was Best For Me?

The 3 top ETFs according to Investopedia are SPY, IVV, and VOO. I took a screenshot of these 3 using the Fidelity compare tool where I am an investor. IVV is offered free to trade and is tied for the lowest expense ratio at 0.04% with VOO. So for me…IVV was the choice! It's important to note that VOO is commission free if you are a Vanguard customer buying it through Vanguard's website. The chart below is a Fidelity chart. Therefore, it only shows IVV as commission free. Thank you to sa_node on Reddit for pointing out this important distinction and fact. Investing does not need to be complicated!

The blog Monevator recently shared the following video which helps to clarify the point of this article.

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