Is investing in S&P 500 enough?
Financial experts generally say investing in an S&P 500 index fund is a sound strategy — though it does leave room for diversification. “It could prove an effective strategy if you hang on,” said Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth in New York.
So if you're happy with a portfolio that performs comparably to the stock market as a whole, then sticking to S&P 500 ETFs alone isn't a bad idea. However, if you assemble a portfolio of individual stocks that perform better, you might enjoy a 12% or 15% return over time -- or more.
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.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
Investing in an S&P 500 index fund is a great way to diversify your portfolio. Whether you choose an ETF or a mutual fund depends on how much you can afford and what your goals are for the future. Regardless of which option you choose (or if you choose both), you're likely to see some consistent returns.
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.
A different path. Buffett didn't make his fortune by socking away money in an S&P 500 index fund, though. He invested in individual stocks. For anyone seeking to follow this different path to becoming a millionaire, Buffett has also offered sage advice.
All that matters is how patient you are and which S&P 500 stocks you buy. Even if you only have $1 and never invest another penny, you can be a millionaire in 30 years. It's just that you'd need to hit a home run S&P 500 stock — which returns at least 58.5% — each year. That's a tall order, yes.
Is Investing in the S&P 500 Less Risky Than Buying a Single Stock? 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.
| Rate of return | 10 years | 30 years |
|---|---|---|
| 4% | $72,000 | $336,500 |
| 6% | $79,000 | $474,300 |
| 8% | $86,900 | $679,700 |
| 10% | $95,600 | $987,000 |
Can I retire at 60 with $1 million dollars?
Summary. $1 million should be enough to see you through your retirement. If you choose to retire early, you may need additional savings and amend your desired retirement lifestyle to live a little more frugally.
And for a 20-year investment, returns have been 100% positive. But given the possibility for short-term stock market volatility, you should only invest in an S&P 500 index fund if you don't expect that you'll need your money for around five years.
Investing in an S&P 500 fund can instantly diversify your portfolio and is generally considered less risky. S&P 500 index funds or ETFs will track the performance of the S&P 500, which means when the S&P 500 does well, your investment will, too. (The opposite is also true, of course.)
Diversification is an important factor, and you'll want to balance having too much in one type of asset. For example, many experts recommend having an allocation to large stocks such as those in an S&P 500 index fund as well as an allocation to medium- and small-cap stocks.
Is Berkshire Hathaway Stock A Buy Now? Berkshire Hathaway stock generally lagged the S&P 500 index since late 2017, but managed to handily outperform the benchmark index in 2022. It lagged again in 2023 after giving up some spring and summer gains.
The main drawback to the S&P 500 is that the index gives higher weights to companies with more market capitalization. The stock prices for Apple and Microsoft have a much greater influence on the index than a company with a lower market cap.
Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years.
| Investment Return | Future Value of 300,000 in 10 Years |
|---|---|
| 4.75% | 477,157 |
| 5% | 488,668 |
| 5.25% | 500,429 |
| 5.5% | 512,443 |
| Investment Return | Future Value of 200,000 in 10 Years |
|---|---|
| 9.25% | 484,445 |
| 9.5% | 495,646 |
| 9.75% | 507,079 |
| 10% | 518,748 |
If you're new to investing, you can absolutely start off by buying index funds alone as you learn more about how to choose the right stocks. But as your knowledge grows, you may want to branch out and add different companies to your portfolio that you feel align well with your personal risk tolerance and goals.
Why can't you invest in the S&P 500?
Since the S&P 500 is simply a measure of its underlying stocks' performance, you can't invest in it directly—instead, you can buy S&P 500 index funds through either a mutual fund or ETF that strives to match the performance of the S&P 500 market index.
The Warren Buffett Portfolio obtained a 9.59% compound annual return, with a 13.65% standard deviation, in the last 30 Years. The US Stocks Portfolio obtained a 9.95% compound annual return, with a 15.54% standard deviation, in the last 30 Years.
A well-constructed dividend portfolio could potentially yield anywhere from 2% to 8% per year. This means, to earn $3,000 monthly from dividend stocks, the required initial investment could range from $450,000 to $1.8 million, depending on the yield. Furthermore, potential capital gains can add to your total returns.
In addition to Tesla, Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN) and NVIDIA Corp (NASDAQ:NVDA) are among the top stocks hedge funds and Wall Street analysts are buying.
Returns in the S&P 500 over the coming decade are more likely to be in the 3%-6% range, as multiples and margins are unlikely to expand, leaving sales growth, buybacks, and dividends as the main drivers of appreciation.
