SPY trading at $124.80 as of June 13, 2001
Let's face it, Dad: Over the past few years, your portfolio has taken on water. That white-hot tech stock your full-service broker told you to buy -- the one you sunk a wad into because the company's employees "seemed like smart, fun people" -- went bankrupt a few months ago. The German fund your best friend was so pumped on -- the one that was going to be a ten-bagger in five months (Mensch!) because of the dollar's strength -- just didn't pan out.
Dad, it's time you turned a deaf ear to the vagaries of Wall Street and learned a lesson from your youngest (but tallest) daughter. After all you've taught me over the years, it's the least I can do!
The fact is, you work hard, and when you're not at the office you'd rather be sailing, biking, or dipping shrimp in cocktail sauce down on the boardwalk while watching the waves roll in. Why sweat over balance sheets and income statements when you can plunk a chunk of cash into an account and hit the high seas while your money compounds day after day, month after month, and year after year -- all with no extra effort on your part?
What am I talking about? Why, John Bogle's golden steed of financial vehicles, without doubt familiar to you: the S&P 500 index fund.
Index funds are a favorite investment here at The Motley Fool, and they offer three distinct advantages over common stock holdings:
1) No heavy research required
The S&P 500 index consists of 500 companies from a range of industries -- widely held companies like Exxon Mobil (NYSE: XOM), Microsoft (Nasdaq: MSFT), and Citigroup(NYSE: C) -- that are chosen based on market size, liquidity, and sector representation. Because the index tracks the overall growth of these companies, you in essence own them all. Leave the pile of prospectuses behind and hit the beach!
2) Steady returns over the long term
Since 1926, the S&P 500 has provided an average annualized return of 11%. Over the past 10 years, that return is 14.4% (and that even includes this last doggie year) -- neck in neck with solidly performing stocks such as Coca-Cola(NYSE: KO) and walloping most of those risky new-economy stocks.
3) A safer place than individual stocks for money you'll need in 10 years or more
Because the S&P 500 tracks such a large spectrum of the market, you're protected from huge hits in one sector or a bad stock pick (or two or three). Since you're nearing those post-work years when you'll need to have greater liquidity -- and stay hydrated in general -- the S&P is a good intermediate stop for your money on the way out of individual stocks and into safer short-term vehicles like bonds and certificates of deposit.
You can buy the S&P 500 like a stock through exchange traded funds (ETFs). Standard and Poor's Depositary Receipts (AMEX: SPY), also known as SPDRS, and the iSharesS&P 500 Index Fund (AMEX: IVV) are ETFs that track the S&P 500.
So Dad, take some advice from an unusual source and consider cutting loose from the stock-picking extravaganza for now in exchange for some quality time tooling around the Intracoastal Waterway, taking long walks on the beach, and sipping chichi drinks from froufrou straws in the art deco district. After all, you want to protect your wealth for future generations, don't you -- don't you?!
Josie Raney's (TMF Swing) portfolio includes shares of the S&P 500. She is fond of all things index: funds, cards, fingers, and wishes fathers everywhere a Happy Father's Day.
A Stock for Dad represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts. Which can be way out there, so do your homework, and review The Motley Fool's disclosure policy
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