Since 1945, there have been 14 bear markets – the last three being each with an average length of five months – resulting in stocks losing, on average, 36% in value during each bear market. The bad news is that we entered bear market territory on May 20th.
The good news is that if the past 100 years are any indication, the S&P 500 should rebound. Two ways to invest in that rebound are through SPDR S&P 500 ETF Trust (NYSEMKT: spy) And the Vanguard S&P 500 ETF (NYSEMKT: VOO)both of which trace an index Large US companies that make up the S&P 500. Buffett’s belief in the S&P 500 is so strong that it prompted him to instruct his estate to put 90% of his money into the index for his wife’s benefit upon his death.
The S&P 500 has time on its side
Even better news for investors is that bull markets happen 78% of the time, compared to 20% for bears, with bulls averaging 114% more in stock values. Going back to the bursting of the internet bubble in 2001, the S&P 500 averaged 6.8% annual returns, with a 14-year increase compared to an eight-year decline. Looking at the two biggest annual losses during that time — 23% in 2002 and 38% in 2008 — the following year yielded 23% gains both times.
The numbers may be confusing, but the point is that the S&P 500 made gains Long term investorsIts broad focus on a complete index provides diversification across sectors. This diversification helps reduce the risks that may come with investing in one industry.
Although both ETFs focus on tracking the same index, there are some slight differences. Stock prices vary, although higher stock buying makes this highly moot. The Vanguard ETF expense ratio is lower at 0.03%, but the 0.09% SPDR ETF expense ratio is still very low.
When all is said and done, both funds essentially mirror the S&P 500, which means investing in each of these ETFs would have returned positive gains in 14 of the last 22 years. In fact, the average annual return over the past 10 years for each ETF is 13.6%, which means that $10,000 invested 10 years ago would be worth about $35,800 today.
If the current bear market, which has already reduced some stocks by 36% or more, continues through October, it is realistic that a 23% gain will begin shortly thereafter, and during the next bull market we can look to achieve a gain of 114%. Both Best S&P 500 ETFs It can help investors realize this level of gains.
Of course, there is always the risk that a long-term bear market will turn into a multi-year recession, and these are the risks every investor takes in the beginning. But even though savvy investors separate gambling from investing, the odds of these two exchange-traded funds yield meaningful long-term gains for the investor and lead to significant Buffett-backed investments in the long run.
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Jeff Little He has no position in any of the mentioned shares. Motley Fool has and recommends positions in the Berkshire Hathaway (B stock) and Vanguard S&P 500 ETF. Motley Fool recommends the following options: long January 2023 calls of $200 on Berkshire Hathaway (B shares), short January 2023 200 calls on Berkshire Hathaway (B shares), short January 2023 calls of $265 on Berkshire Hathaway (B shares) . Motley Fool owns a profile Disclosure Policy.