The S&P 500 Index or the Standard & Poor's 500 Index is a market-capitalization-weighted index of 500 of the largest publicly-traded companies in the U.S.
The Standard & Poor's 500 Index is the most commonly used benchmark for determining the state of the overall economy of the US. AUKTN and many other investors also use the S&P 500 as a benchmark for their portfolios.
The advantage of using the S&P 500 as a benchmark is the wide market breadth of the large-cap companies included in the index. These companies are multinational which arguably represents the world’s economy. However this is also a disadvantage because it only contains the large-cap companies! Which is in contrast with investors that may own small-cap or foreign companies (and other diversified assets like bonds, precious metals, and cash) in their portfolios.
Taking a hint from one of the worlds leading investors Warren Buffett, who is a of master of value investing. He acknowledges that individual stock picking is not for everybody. He advises that most average, long-term investors would benefit from a much simpler strategy, of investing in low-cost index funds.
"My regular recommendation has been a low-cost S&P 500 index funds " – Warren Buffett (2016 Berkshire Hathaway annual shareholder letter)
"If I were going to put money into an index fund in relatively equal amounts over a 20 or 30-year period, I would pick a fund — and I know Vanguard has very low costs. I'm sure there are a whole bunch of others that do. I just haven't looked at the field." "But I would be very careful about the costs involved," he continued, "because all they're doing for you is buying that index. I think that the people who buy those index funds, on average, will get better results than the people that buy funds that have higher costs attached to them because it's just a matter of math." - Warren Buffett (annual shareholder's meeting in 2002)
"A low-cost index fund is the most sensible equity investment for the great majority of investors - By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals " – Warren Buffett (The Little Book of Common Sense Investing).
So, in conclusion, if you can’t beat the S&P 500 index, and you are young with at least 10 – 20 years ahead of you, then you might as well invest in just buying the index.
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