Warren Buffett, CEO and Chairman of Berkshire Hathaway.
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In 2007, Warren Buffett made a $1 million bet that he could outperform hedge fund managers within a decade by investing in an S&P 500 index fund.
In 2017, he won.
Some individual investors are using their own money to make similar bets on the S&P 500, whether through exchange-traded funds or mutual funds.
As the name suggests, the S&P 500 index consists of 500 large U.S. companies. The index is market capitalization weighted, with each public company’s weight based on the total value of all its outstanding shares. The index is rebalanced quarterly.
Three major ETFs track the S&P 500, according to Morningstar. they are SPDR S&P 500 ETF Trustits trading code is SPY; iShares Core S&P 500 ETFwith the ticker symbol IVV; and Vanguard S&P 500 ETFtrading with VOO. Together, these funds account for nearly 17% of the U.S. ETF market, according to Morningstar.
VOO has been the leader among the three funds in attracting new money in 2024, with net inflows of $71 billion in the first nine months, $20 billion higher than the record set by SPY in 2023, according to Morningstar data.
Future index performance may be “moderate”
S&P 500 continues to make headlines A record high in 2024.
The performance beat some experts’ forecasts for the index this year, in part due to a stronger-than-expected U.S. economy.
“That elusive recession that everyone was expecting never materialized,” said Larry Adam, chief investment officer at Raymond James.
Now, the St. Petersburg, Florida-based company is predicting a soft landing for the U.S. economy. However, the rally in stocks may not be as strong.
“I think you’re going to see a calmer performance — still up, but calmer,” Adam said.
Historically, he said, the market tends to decline on average about 1.5% from early October to Election Day.
“The reason is that markets don’t like uncertainty,” Adam said.
The good news, he said, is that the market tends to recoup these losses and move higher.
Goldman Sachs just raised its 2024 S&P 500 forecast to 6,000 from 5,600 to reflect expected earnings growth. Tom Lee, managing partner and head of research at Fundstrat Global Advisors, also recently told CNBC that he is calling for a target of 6,000 for the S&P 500 by the end of the year.
S&P 500 ‘hard to beat in the long run’
Investing in the S&P 500 Index is a popular strategy.
“There’s a reason why it works so well, and that’s never going to change,” said Brian Armor, director of research for passive strategies at Morningstar.
Its advantages include being low-cost, capturing most of the opportunities available to active managers and being “hard to beat in the long run,” he said.
“Overall, I think the S&P 500 is better and more diversified than most investment strategies,” Armor said.
This allows you to take a “set it and forget it” approach and avoid trying to time the market, he said.
However, investing exclusively in S&P 500 index funds carries certain risks on the stock side of the portfolio.
“The S&P 500 is definitely what (investors) have done over the past seven or eight years,” said Sean Williams, a certified financial planner and principal at Cadence Wealth Partners in Concord, North Carolina. The best thing.
“A lot of people have this mindset of, ‘Why should I do anything different?'” he said.
Generally speaking, it’s not a good idea to put everything in one place, even for large U.S. companies that have done well over the past decade, Williams said.
Exposure to other sectors, such as international companies, small and medium-sized companies and real estate, is always helpful, he said.
Investing in S&P 500 Index strategies involves concentration risk. For example, information technology includes Accounting for 31.7% of the indexcompanies include apple, Microsoft, NVIDIA and Broadcom.
To mitigate this risk, investors may consider moving to a total market portfolio such as Vanguard Total Stock Market ETFThe company trades under the symbol VTI, which reduces concentration at the top of the portfolio, Armor said.
Additionally, for broader exposure, investors could also consider buying small-value ETFs, an area that Morningstar analysts currently view as “significantly undervalued,” Armor said.
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