1 investment that is in my portfolio in the long run | Smart Change: Personal Finance

(Stefon Walters)

Even when you are focused on the long term and use a buy-and-hold investment strategy, your portfolio should change from time to time as time goes on. Not all investments will continue to fit your goals as your life, risk tolerance and opportunities change and that’s all right.

Regardless of the situation, however, there is one investment I will always keep in my portfolio – and that is one I think you should have as well.

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It has stood the test of time

One thing you can count on from one S & P500 index fund is consistency. In no way does past performance guarantee anything about future performance, but for decades the S&P 500 has shown that it has the power to return from some of the worst economic conditions the United States has seen. The S&P 500 as we know it now was created in 1957, and since then it has undergone several crashes and crises, including Black Monday (1987), the bursting of the dot-com bubble (2001), the Great Recession (2008). ) -2009), and the COVID-19 pandemic (2020-now).

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When you invest in the long run, you will have investments that can survive tough economic periods and recover from them because you will inevitably live through such times. If an investment grows exponentially for a while but then dives over a short period of time and never recovers, these growth years will not mean much. This is not something you need to worry about with an S&P 500 index fund.

It gives results

Historically, the S&P 500 has an average of just over 10% annually. At that rate, consistent investment can provide a significant return over time. If these average annual returns continue over the next 30 years, here’s how much you would end up with, based on a few different monthly contribution levels:

Monthly contribution Total personal contributions over 30 years Total asset value after 30 years
500 USD $ 180,000 $ 986,900
$ 1,000 $ 360,000 $ 1.97 million
$ 1,500 $ 540,000 $ 2.96 million

Data source: author calculations. Assumes 10% average annual return.

You can live with an annual return of 10% as an investor – especially considering how successful the S&P 500 is compared to other funds. The S&P 500 is the most common benchmark for fund managers dealing with large stocks, and it is notoriously difficult to surpass. Just last year, the S&P 500 outperformed almost 80% of actively managed funds. The return will of course vary from year to year, but if your investments generate an average growth of around 10% annually in the long run, you are in good shape.

It makes it easier to invest

A solid portfolio is well diversified among industries. With an S&P 500 index fund, you know you’re getting a range of well-established companies in virtually every sector: communications services, consumer goods, consumer goods, energy, finance, healthcare, industry, information technology, materials, real estate, and utilities. And that’s just the broad sectors. You also have industries in these sectors such as automotive in consumer discretion, insurance in finance and software in information technology.

An S&P 500 fund gives you instant diversification and achieves one of the most important fundamentals of investing. Trying to achieve that level of diversification by investing in individual companies would not only be tedious – imagine all the companies and industries you have to research – but there is also a good chance that the resulting portfolio will perform worse than the index in the long run. .

If there is one investment I want in my portfolio in the long run, it is one that marks the check boxes for important investment bases, can survive tough economic times and provides returns that put me on track for my financial goals. An S&P 500 index fund achieves all of these things.

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