You don't risk losing all your money if one company collapses, as you could with individual investments. However, you also don't have as much upside potential for the astronomical returns that can result from picking a single huge winner.
Index funds are passively managed, meaning you're not paying someone to actively pick and choose investments. Passively managed funds result in a lower expense ratio due to having lower investment management fees than actively managed funds.
Your money will track the market's performance
Historically, the S&P 500's annual returns have been in the range of 9% to 10%. In some years, the index will lose value. For example, during the Great Recession, the S&P 500 lost about half its value. Meanwhile, the index experienced a bear market starting in early 2022 and had declined by roughly 20% from its peak by the fall.
However, the index rallied by roughly 24% in 2023. On Nov. 11, 2024, the index crossed 6,000 for the first time. The index rose by another 23% in 2024. Despite a major sell-off in March and April, largely due to concerns about tariffs and higher-than-expected inflation, the S&P 500 finished out 2025 with total returns of about 18%.
The S&P 500 index has a solid history of such rebounds. Over the long term, the index has always recovered. A 20-year investment has never resulted in a loss in the S&P 500's history.
You will keep more of your investment profits in your pocket
S&P 500 index funds are low-cost investments. While active managers are likely to match or even beat the market's performance over time, their fees eat away at your returns. Because they're passive investments with low fees, S&P 500 index funds deliver returns that mirror the index's returns over the long term.
You'll be investing in 500 of the most profitable companies in the U.S.
The corporations represented in the S&P 500 are subject to stringent listing criteria. To join the index, a company must have a $22.7 billion market capitalization, and the sum of its past four quarters' earnings must be positive.
Each company must also get approval from an index committee. The S&P 500's largest holdings include Apple (AAPL -1.57%), Nvidia (NVDA -3.58%), ( ), ( ), and ( ).
