Wall Street seemingly offers only one guarantee to its investors: Unpredictability. Both investor sentiment and the three major indexes -- the Dow Jones Industrial Average (^DJI 0.40%), S&P 500 (^GSPC 1.02%), and Nasdaq Composite (^IXIC 2.02%) -- can turn on a dime.

For instance, all three indexes have been whipsawed since the beginning of the decade. Investors have navigated their way through the COVID-19 crash in February-March 2020; enjoyed a virtually uninterrupted bull market in 2021; trudged through a bear market for the Dow, S&P 500, and Nasdaq Composite in 2022; and are once again riding Wall Street's coattails to big gains in 2023.

But for truly patient investors, one strategy offers an exceptionally high success rate and abundant rewards.

A businessperson holding a stopwatch behind ascending stacks of gold coins.

Image source: Getty Images.

Being an optimist has always been a smart move

Before digging into what I'd deem Wall Street's most successful investment strategy, it's important to recognize that the major indexes are going to have their ups and downs.

Sell-side research company Yardeni Research notes that since the start of 1950, the broad-based S&P 500 has endured 39 double-digit percentage declines. As of the time of this writing on July 27, we're talking about a stock market correction or bear market occurring, on average, every 1.89 years. That's pretty common.

Yet what's even more common is a bull market for equities. Wealth management firm Bespoke Investment Group recently published its findings that compared average bear markets in the S&P 500 to average bull markets:

Note, Bespoke's definition of a bull market is a 20% or greater rally following a 20% or greater bear market decline. Meanwhile, a bear market is defined as a 20%+ decline following a 20%+ rally. All told, there have been 27 respective bull and bear markets since September 1929, based on this definition.

Bespoke's dataset found that the average bear market has lasted only 286 calendar days. That compares to the average bull market, which is 1,011 calendar days. Long story short, S&P 500 bull markets last around 3.5 times longer than the typical bear market. Being optimistic has continually been a smart bet on Wall Street.

This investment strategy has historically been foolproof (with a catch)

For Wall Street's top money managers and investment minds, a stock-picking success rate of greater than 60% would be phenomenal. But for one investment strategy, the success rate is a cool 100% dating back more than a century.

Every year, market analytics research company Crestmont Research updates a dataset that examines what a fictitious investor would have generated in total returns, including dividends, if they'd invested in the S&P 500 and held on to their position for 20 years.

What makes Crestmont's dataset so unique is that its researchers were able to back-test returns to the start of the 20th century. Even though the S&P 500 didn't have 500 components prior to 1957, and technically didn't exist before 1923, the companies found in the S&P 500 were part of other major indexes at the time. This made back-testing its model to 1900 possible and gave Crestmont 104 separate periods of rolling 20-year total-return data (1919-2022). 

Chart showing the S&P 500 rising overall since the 1950s.

^SPX data by YCharts.

The result of Crestmont's analysis shows that every single rolling 20-year period produced a positive total return -- that's 104 out of 104 instances. Regardless of whether you invested near a stock market peak or happened to put your money to work near a market trough, you made money. The one very big catch is that you needed to remain invested for 20 years.

Although directional movements in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite can be highly unpredictable when examined over short timelines, the long-term expansion of the U.S./global economy, along with rising corporate earnings, provides a recipe for the major indexes to increase in value over time.

Here's how you can put this historically profitable strategy to work right now

While the aforementioned investment strategy is undefeated, dating back to 1900, individual investors can't directly buy indexes like the S&P 500. Thankfully, Wall Street has a fix for that: Index funds.

In January 1993, the SPDR S&P 500 ETF Trust (SPY 0.95%) made its debut. As its name implies, it's an exchange-traded fund (ETF) comprised of every component held in the S&P 500, and it attempts to mirror the performance of the index it tracks. The SPDR Dow Jones Industrial Average (DIA 0.36%) and Fidelity Nasdaq Composite Index ETF (ONEQ 2.11%) are ETFs that attempt to mirror the performance of the Dow Jones Industrial Average and Nasdaq Composite, respectively.

The advantage of index funds is simple: Diversification at the click of a button. Instead of having to add around 500 components to your portfolio in various weighted allocations, the SPDR S&P 500 ETF Trust provides an easy way to replicate the performance of the benchmark index and, over the course of 20 years, reap the rewards of wealth creation.

A person holding a smartphone that's displaying buy and sell buttons above a volatile stock chart.

Image source: Getty Images.

Although there's been no wrong answer when it comes to buying and holding index funds of the Dow, S&P 500, or Nasdaq over long periods, there is one index fund that has a bit of an advantage over its peers. Whereas the tried-and-true SPDR S&P 500 ETF Trust charges a net expense ratio of 0.09%, the Vanguard S&P 500 ETF (VOO 1.00%) sports an expense ratio of just 0.03% (as of April 28, 2023). 

For a small investment, the difference in net expense ratios between the SPDR S&P 500 ETF Trust and Vanguard S&P 500 ETF amounts to pinching pennies. But for someone putting a significant amount of money into index funds, who has the potential to double their investment multiple times over 30, 40, or 50+ years, this six-basis-point difference can allow investors to hang on to quite a bit more of their cash.

While the SPDR S&P 500 ETF Trust is a fine choice to generate a 100% long-term success rate, the Vanguard S&P 500 ETF is just a bit better and accomplishes the same goal.