As an investment option, the S&P 500 has the potential to deliver a healthy return. This index closely follows trends in the U.S. economy. It saw a 37% drop in value after the financial crisis in 2008 but has since gained 31%. However, market timing is important when investing in this index.
S&P 500 stocks have proven earnings
If you're a long-term investor, investing in S&P 500 stocks and exchange-traded funds can be a lucrative strategy. Over the past several decades, S&P 500 stocks have consistently provided good returns. The average annual return on an S&P 500 mutual fund or ETF is 8%, but returns will vary between stocks.
In order to be included in the S&P 500, a company must have at least one year of profitable earnings. The company may have lost money in the short term due to operating costs, but it has to have proven that its earnings have increased over time. It also has to have a high market capitalization (market value times outstanding shares). Finally, more than 50% of the company's stock must be held by individual investors.
There are plenty of options to choose from in the S&P 500. Some of them offer low volatility. Others offer high growth potential. Monolithic Power Systems, for example, sells semiconductor-based power solutions to a variety of industries. Its wide-range of clients reflects its broad-based business, and Wall Street is unanimously bullish.
They have strong balance sheets
While catching a falling knife is a dangerous proposition, staking a position in quality stocks is a safe bet. S&P 500 stocks are among the best on the market right now, according to analysts' consensus ratings. While the index is still in the red year-to-date, it doesn't mean you should avoid investing in these stocks. Some of the worst S&P 500 stocks are also among the most solid ones in the market.
Investors should focus on stocks with fortress balance sheets, since they can take advantage of a rough market by acquiring beaten-down companies, issuing dividends, and buying back stock at a discount. For example, Berkshire Hathaway has bought back $51 billion in stock this year.
In fact, many companies in the S&P 500 have huge cash piles. The largest of these is Apple, which has more than $170 billion in cash. This represents more than 6% of the total cash on the S&P 500. Another good example is Microsoft, which has $132.3 billion in cash.
They have low expense ratios
If you're looking for an investment that produces long-term gains, the S&P 500 is a good option. The S&P 500 index fund includes 500 large-cap stocks. If you're looking for a more diverse portfolio, consider an ETF. These funds can include stocks of mid and small-cap companies as well as bonds. And unlike traditional index funds, ETFs can be bought at any time of day. But timing the market isn't a good idea, according to experts.
When comparing various S&P 500 funds, you'll notice the difference in expense ratios. Some charge 0.02% of the total value of the fund, while others charge a fee of less than 0.01%. Vanguard's 500 Index Fund costs 0.14%, but requires a minimum investment of $3,000.
A good index fund typically has the lowest expense ratio. That means it doesn't require you to invest a lot of money to get a good result. That means lower fees and fewer fluctuations. Low expense ratios make the S&P 500 a good investment for long-term investors.
They have a long history of tracking solid returns
The S&P 500 has been tracking solid returns for investors since 1956, when it became an index comprised of 500 companies. The index has consistently posted returns of about 8% per year over the past half-century. The S&P 500 index includes dividends.
Despite its recent correction, the S&P 500 index has a strong track record of tracking solid returns. The S&P 500 has also weathered a number of market downturns and market events. In the first year following Fed rate hikes, the index has returned an average of 7.7%. In addition, two separate studies by Deutsche Bank and Truist Advisory Services have found that the S&P 500 index has produced a compound annual growth rate of 9.4% in hike cycles since 1955.
Investing in individual stocks isn't practical for most people, but there are a few ways to invest in the S&P 500 index without risking your money. The first method is to purchase low-cost mutual funds that track the S&P 500 index. These funds trade like stocks and can be purchased and sold instantly through a brokerage.