I love the S&P 500 index because it offers me, almost instantly, the approximate returns of the overall stock market. Well, let's be a little more specific: This index of 500 leading American companies doesn't just represent the market -- it largely is the market, containing about 70% or more of its value. (If you want total market exposure, opt for the also excellent Wilshire 5000 index, which features more than 7,000 stocks.)
The main reason to love this index is that over time, it tends to beat the pants off the majority of managed mutual funds. That's right. All those well-paid financial professionals who charge significant fees to manage our money often fail to beat the results of the S&P 500.
The lesson there is that in many cases, unless you have the energy to spend to find those top-notch funds that stand the best chance of beating the index, you're better off just investing in the index and calling it a day. (We'd love to help you zero in on some top-notch funds -- our Champion Funds newsletter's recommended funds are, on average, beating the index 32% to 19%. Try it for free and see all the recommendations.)
In other words, the S&P 500 is pretty much the average investor's silver bullet and best friend. It offers returns that beat most bonds and other funds over most time periods, and all while requiring very little work. Just sign up, invest your money, and forget about it.
Within the S&P 500, you'll find top companies in more than 100 industry sectors. Whereas "The Dow" contains just 30 companies, the S&P 500 contains some 16 times that. Check out the following examples of component stocks and you'll get an idea of the breadth of the index:
- Avery Dennison
- Campbell Soup
- Charles Schwab
- Norfolk Southern
- Southwest Airlines
Don't get me wrong. As much as I love earning the market's average, I also aim to beat it. That's why I invest not only in an S&P 500 fund (which is often among your best bets within your 401(k) options) but also in individual companies and managed mutual funds that I hope will outperform the index. Still, I'm thankful for the index, because if and when I don't want to pay much attention to my investments, as is the case for many people, I can just park my moola in a broad-market index fund and enjoy market returns, which will beat the pants off most managed mutual funds. That's not only satisfying but enriching.
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