1 Investment in my portfolio for the long term | Smart Change: Personal Finance

(Steven Walters)

Even when you focus on the long term and use a buy and hold investment strategy, your portfolio should change occasionally over time. Not all investments will continue to align your goals as your life changes and take risks and opportunities, and that’s totally fine.

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

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It has stood the test of time

One thing you can count on by Standard & Poor’s 500 Index box is consistency. Past performance in no way guarantees anything about future performance, but for decades, the S&P 500 has shown it has the potential to recover from some of the worst economic conditions the US has seen. The S&P 500 as we know it was created in 1957, and since then, it has gone through many crashes and crises, including Black Monday (1987), the dotcom bubble crash (2001), and The Great Recession (2008-2009), and the COVID-19 pandemic (2020-present).

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When you invest for the long term, you want investments that can withstand difficult economic periods and recover after them, because you will inevitably live in such times. If the investment grew exponentially for a while and then declined over a short period and never recovered, those years of growth won’t mean much. This is not something you should worry about with the S&P 500 Index Fund.

results in results

Historically, the S&P 500 has returned an average of just over 10% annually. At this rate, consistent investments can provide significant returns over time. If you average these annual returns over the next 30 years, here’s how much you’d 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 dollars 180 thousand dollars $986,900
1000 dollars 360 thousand dollars $1.97 million
1500 dollars 540 thousand dollars $2.96 million

Data source: author accounts. It assumes 10% average annual return.

You can live with an annual return of 10% as an investor – especially considering how well the S&P 500 fares compared to other funds. The S&P 500 is the most popular benchmark for fund managers dealing with large-cap stocks, and it’s notoriously difficult to outperform. Just last year, the S&P 500 outperformed nearly 80% of Actively managed funds. Obviously, returns will vary from year to year, but if your investment has a growth rate of around 10% per year over the long term, you’re good to go.

Makes investing easier

A strong portfolio that is well diversified between industries. With an S&P 500 Index Fund, you know you’re acquiring a portfolio of well-established companies in nearly every sector: telecoms services, consumer discretionary, energy, finance, healthcare, industries, information technology, materials, real estate, and utilities. And these are just the broad sectors. You also have industries within these sectors such as automobiles at consumer discretion, insurance in financial statements, and software within IT.

An S&P 500 fund gives you instant diversification, fulfilling one of the investing essentials. Not only will trying to achieve this level of diversification by investing in individual companies be daunting – imagine all the companies and industries you might need to research – but there is also a good chance that the resulting portfolio will outperform the index in the long run.

If there’s one investment I want in my portfolio for the long term, it’s one that screens funds for key investment fundamentals, can withstand tough economic times, and provides returns that put me on the right track toward my financial goals. The S&P 500 Index Fund achieves all of these things.

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