Is it smart to put all money in S&P 500?
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.)
It's a bad idea to ever put all your money at once into a single investment. That would be like betting on red or black at the casino. Rather I would suggest dollar cost averaging into the S&P 500. You can have dollar cost averaging explained at any brokerage or even in a google search.
According to our calculations, a $1000 investment made in February 2014 would be worth $5,971.20, or a gain of 497.12%, as of February 5, 2024, and this return excludes dividends but includes price increases. Compare this to the S&P 500's rally of 178.17% and gold's return of 55.50% over the same time frame.
The good news is that historically, there's never necessarily a bad time to invest -- as long as you keep a long-term outlook. For example, during the Great Recession, the S&P 500 bottomed out in March 2009.
Placing all of one's assets in an index such as the S&P 500, which is concentrated in large-cap US companies, is a high-risk and volatile strategy. When working with clients, we gauge each individual's capacity for accepting risk.
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.
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.
Discount Rate | Present Value | Future Value |
---|---|---|
6% | $1,000 | $3,207.14 |
7% | $1,000 | $3,869.68 |
8% | $1,000 | $4,660.96 |
9% | $1,000 | $5,604.41 |
The S&P 500 has been a profitable investment over every rolling 16-year period in history, and the index returned 1,710% over the last three decades. History says $300 invested monthly in an S&P 500 index could grow into $164,100 over 18 years.
Have a look at the above chart and you'll see that if you put a grand into MSFT stock two decades ago, today it would be worth more than $24,000. The same amount invested in the S&P 500 20 years ago would theoretically be worth almost $6,500 today.
What is the S&P 500 forecast for 2024?
The estimates from strategists put the median target for the S&P 500 at 5,200 by the end of 2024, implying a decline of less than 1% from Friday's level, according to MarketWatch calculations. Heading into 2024, the median target was around 5,000 (see table below).
So, if you are looking to own a more diversified basket of stocks, the S&P 500 will be the right fit for you. However, those who are comfortable with the slightly higher risk for the extra returns that investing in Nasdaq 100 based fund might generate will be better off with Nasdaq 100.
Stock market forecast for the next decade
Since 1947, the S&P 500 has produced roughly 8% annual gains, suggesting the current environment may be a historically bad entry point for investors. In terms of a price target, Bank of America is targeting S&P 500 5,150 to 8,700 with its S&P 500 price forecast for 2030.
Disadvantages of Using the S&P 500 as a Benchmark
Also, the index contains only larger market-cap companies from the U.S.4 In contrast, investors may own small-cap or foreign companies in their portfolios. Using the S&P 500 as a benchmark may be an inaccurate measure of portfolio return for individual investors.
Think About This: $10,000 invested in the S&P 500 at the beginning of 2000 would have grown to $32,527 over 20 years — an average return of 6.07% per year.
When a stock's price falls to zero, a shareholder's holdings in this stock become worthless. Major stock exchanges actually delist shares once they fall below specific price values. The New York Stock exchange (NYSE), for instance, will remove stocks if the share price remains below one dollar for 30 consecutive days.
As you will see, the future value of $40,000 over 20 years can range from $59,437.90 to $7,601,985.51.
The result is the number of years, approximately, it'll take for your money to double. For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
If you had invested $1,000 during Amazon's IPO in May 1997, your investment would be worth $1,341,000 as of August 31, according to CNBC calculations.
If the S&P 500 outperforms its historical average and generates, say, a 12% annual return, you would reach $1 million in 26 years by investing $500 a month.
How long does it take to become a millionaire with S&P 500?
Here's how a 10.25% return would break down if you invested $5,000 at the beginning of each year over four decades. Data source: Author's calculations. As you can see from the chart, investing $5,000 annually in the S&P 500 would make you a millionaire in a little over 30 years, assuming average 10.25% annual returns.
S&P 500 index funds: Historically, these have offered returns between 10% and 14% per year, translating to $100,000 to $140,000 annually on a $1 million investment. However, they come with higher risks and market volatility.
Historically, the stock market has an average annual rate of return between 10–12%. So if your $1 million is invested in good growth stock mutual funds, that means you could potentially live off of $100,000 to $120,000 each year without ever touching your one-million-dollar goose. But let's be even more conservative.
Discount Rate | Present Value | Future Value |
---|---|---|
2% | $100 | $121.90 |
3% | $100 | $134.39 |
4% | $100 | $148.02 |
5% | $100 | $162.89 |
The value of the $1 million today is the value of $1 million discounted at the inflation rate of 3.2% for 40 years, i.e., 1 , 000 , 000 ( 1 + 3.2 % ) 40 = 283 , 669.15.
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