1 Investment That’s in My Portfolio for the Long Haul | Smart Change: Personal Finance

(Stefon Walters)

Even when you’re focused on the long term and use a buy-and-hold investing strategy, your portfolio should occasionally change as time goes on. Not all investments will continue to fit your goals as your life, risk tolerance, and opportunities change, and that’s perfectly fine.

No matter the situation, however, there’s one investment I’ll always keep in my portfolio — and it’s one I think you should hold, too.

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It’s stood the test of time

One thing you can count on from an S&P 500 index fund is consistency. By no means does past performance guarantee anything about future performance, but for decades, the S&P 500 has shown that it has the power to rebound from some of the worst economic conditions the US has seen. The S&P 500 as we know it now was created in 1957, and since then, it has gone through numerous crashes and crises, including Black Monday (1987), the busting of the dot-com bubble (2001), the Great Recession (2008 -2009), and the COVID-19 pandemic (2020-present).

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When you’re investing for the long term, you want investments that can survive rough economic periods and recover after them, because you will inevitably live through such times. If an investment grows exponentially for a while but then plunges over a short period and never recovers, those growth years won’t mean much. That’s not something you’ll have to worry about with an S&P 500 index fund.

It produces results

Historically, the S&P 500 has returned an average of just about 10% annually. At that rate, consistent investments can provide sizable returns over time. If those average annualized returns continue over the next 30 years, here’s how much you would wind 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 $180,000 $986,900
$1,000 $360,000 $1.97 million
$1,500 $540,000 $2.96 million

Data source: author calculations. Assume 10% average annual return.

You can live with a 10% annualized return as an investor — especially considering how successful the S&P 500 is compared to other funds. The S&P 500 is the most common benchmark for fund managers dealing with large-cap stocks, and it’s notoriously hard to outperform. Just last year, the S&P 500 outperformed almost 80% of actively managed funds. Returns will obviously vary from year to year, but if your investments are generating an average of around 10% growth annually over the long term, you’re in good shape.

It makes investing easier

A solid portfolio is well-diversified among industries. With an S&P 500 index fund, you know you’re getting an array of well-established companies in virtually every sector: communication services, consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, materials, real estate, and utilities. And that’s just the broad sectors. You also have industries within these sectors like automotive within consumer discretion, insurance within financials, and software within information technology.

An S&P 500 fund gives you instant diversification, accomplishing one of the key fundamentals of investing. Attempting to achieve that level of diversification by investing in individual companies would not only be tedious — imagine all the companies and industries you would need to research — but there’s also a good chance that the resulting portfolio would underperform the index in the long run .

If there’s one investment I want in my portfolio for the long haul, it’s one that checks off the boxes for key investing fundamentals, can survive rough economic times, and provides returns that put me on track toward my financial goals. An S&P 500 index fund accomplishes all of those things.

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