Over the years, I’ve worked hard to transfer money out of my checking account into an investment account to save for the future. As a result, I have a reasonable brokerage account balance.
While I have a good amount of money in my brokerage account, I don’t own a lot of different investments. In fact, almost every dollar is invested in one simple investment: an S&P 500 index fund.
Here’s why I keep so much of my money in one asset instead of spreading it around more.
The S&P 500 has a consistent track record
One of the biggest reasons why I’ve chosen to put my money into the S&P 500 is because this investment has a very long track record, so I know what I can reasonably expect to earn. The S&P 500 has consistently provided around 10% average annual returns since 1928.
Since there’s very little reason to expect that this will change, I feel pretty confident that I can expect my portfolio to give me an average 10% return on investment (ROI) over the long term if I keep my money invested in the S&P 500.
While I could potentially beat this if I picked individual stocks, I’d have to be really good at selecting investments for that to happen. And my returns would be uncertain, which would make it harder to plan how much I need to invest for the future.
If you want an investment with a stable, consistent track record, the S&P 500 may just be a great investment option for you as well.
It provides instant diversification
Because the S&P 500 invests in big businesses in lots of different industries, my investment in it allows me to diversify my portfolio without any real effort on my part. I don’t have to look for dozens of different assets to invest in to make sure I’m exposed to different industries — this one investment is sufficient to give me exposure to different parts of the economy.
If you have a hard time deciding how to divide up your investment dollars across companies in different industries — especially since you’d need to learn about a lot of different types of companies to buy individual stock shares of businesses in different fields — then an S&P 500 index fund might be an easy option for you.
I don’t want to have to think about my investments
Finally, one of the biggest reasons why I’ve chosen to put my money into an S&P 500 fund is that I don’t have to think about it. There’s no need to research beyond using my brokerage account’s screening tool to find a low-fee S&P 500 ETF (exchange-traded fund). I don’t need to worry about whether I should sell due to changing economic conditions. In fact, I don’t even need to check in on my portfolio since my money is just invested automatically in this investment.
If you’re hesitant about opening a brokerage account because you’re afraid investing is complicated or because you don’t know what to invest in, you don’t have to be. You can just pick a simple investment like an S&P 500 fund and put most of your money into it, too. It takes about 10 minutes to get your account open, find a fund, and buy in, so do it now to start your money growing for you.
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