With the stock market, one might ask: Is it a good time to invest in the S&P 500? To find the answer, one must turn to a cartoon that showed what could very well be Superman being interrogated by a man in a tie.
—“Oh wow, so you can fly,” the man in the suit asked.
—”That’s right,” replied the superhero.
—So, do you think it could outperform the S&P 500? —the man in the tie concluded the conversation.
The cartoon, published decades ago, became iconic and can now easily be found as a graphic description of what the S&P 500 means or implies as the index that flies the highest. Also as the most difficult to beat (only a few have managed to do so consistently). In fact, the creator of the image emphasizes that idea by making it seem that not even Superman himself is capable of beating it. Finally, he highlights that the question of whether it is a good time to invest in the S&P 500? has probably always been on the table, but the answer has always been yes and we will teach you how to invest in the S&P 500 in a simple way.
What is the S&P 500 and why is it so important?
The Standard & Poors 500 Index (S&P 500) is the most well-known and important index in the world, as it tracks the performance of the 500 largest US companies. This is why it is also considered the most representative index of the real market situation. It has also proven to be the most consistently profitable since its creation (in 1923, when it grouped 233 companies). In fact, while global stocks have historically yielded 5.1%, US stocks included in the S&P 500 have yielded 6.5%.
All of this has made the index a benchmark for the investment world. To the point that, in one way or another, most investors around the world have a part of their portfolio invested in it directly or through instruments that replicate it. For this reason, it is always thought that it is a good time to invest in the S&P 500.
Why invest in the S&P 500?
Among the advantages that the S&P 500 offers to investors, and why it is considered so attractive, the following stand out:
Diversification
The first answer to whether it is a good time to invest in the S&P 500 is yes, because it offers high diversification. The index stands out because it is made up of 500 companies from every imaginable sector. They also have businesses all over the world – after all, most of them are multinationals with a presence all over the planet. Finally, the index is weighted by the capitalization of each company, so the larger the company is (which means that it is more diversified and internationalized) the more diversification it offers.
To understand this, for example, we can look at the business models and regions in which the so-called ‘Fantastic Seven’ are present: Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla. Despite their enormous volume, they only represent 30% of the index. No other index offers similar diversification.
Historical stability
Another of the most striking advantages, which makes it always a good time to invest in the S&P 500, is that it is less exposed to market declines. One of the reasons is its enormous diversification, which acts as a counterweight to uncertainties and even more so when markets collapse. The other is that, by having the best companies in the world on the list, it is normal for them to be less affected during declines.
That stability, even in the worst of times, can be seen by looking at March 2020, when the markets collapsed due to COVID: at that time, the S&P 500 fell by 7.79%, while for example the Ibex 35, the Spanish index, sank by more than 14%.
Long-term potential
The question of whether it is a good time to invest in the S&P 500 is always on the table due to its enormous revaluation, but the reality is that there are few indices with more potential as a long-term financial investment. And this has been demonstrated again recently, since since it hit bottom in April 2022, the index that includes large US companies has shot up by almost 60%, which places it above any other major index in the world.
But there is something important underlying all of this, again, the importance of having the best companies in the world. By investing in the S&P 500 you are also investing in what could be the next great companies in the world and benefit from their growth. A good example is Nvidia, which alone explains a part of the accumulated growth of the index in recent years. In addition, companies with problems are also expelled, losing their position in the top 500, which maintains the virtuous circle. Therefore, it is always a good time to invest in the S&P 500.
The big question right now: Is it a good time to invest in the S&P 500?
The answer is clear: yes, it is a good time to invest in the S&P 500. First of all, the index continues to maintain its previously mentioned advantages, largely thanks to the ‘magnificent 7’. In addition, a simple tip to grow your money in the long term is to invest in the S&P 500 and let time do its work.
However, it is also important to look at the current market. From a technical perspective, to assess whether a market may fall soon, it is necessary to analyze three factors:
- Exotic shocks: An investor should always have room for an unexpected catastrophic event on their horizon. COVID was one of them, for example. However, these are very rare cases that are very difficult to take into account in a portfolio and for which it is almost impossible to be prepared.
- Shocks to the financial system: the weak link at the moment seems to be public finances. In fact, several alarms have already been raised regarding the US deficit, although this has not resulted in a stock market punishment.
- Macroeconomic shocks: These are the events that investors deal with on a daily basis. They are also currently positive, with inflation falling and a horizon of rate cuts.
Invest in the S&P 500 from the comfort of InbestMe
As you can see, it is still a good time to invest in the S&P 500, which is still as attractive as it was a few months or years ago. The question now is what is the best way to invest in it. One of them is some of the investment platforms that are rapidly gaining market share, such as InbestMe. This is a firm with more than five years of experience in Spain that offers a careful selection of the best index funds and ETFs that follow the S&P 500.
So, if you want to grow your money in the long term, the best option is to invest part of your assets in the S&P 500 through an InbestMe ETF or index fund, since you will benefit from all its advantages at reduced costs.
