This Is Why Graham Stephan Likes Investing in the $SPY Over 'Any' Fund

Read this before deciding where to invest your money. 

Recently, finance expert and YouTube personality Graham Stephan posted a chart on Twitter comparing the performance of several different investments, including the Fidelity Magellan Fund, an actively managed mutual fund (a fund manager chooses investments). Fidelity's fund seeks capital appreciation and primarily invests money in large U.S. companies. 

The purpose of this chart was to explain why Stephan believes that investing in $SPY is going to be the best bet for most investors, rather than picking any particular fund to put money into. $SPY is an exchange-traded fund designed to track the performance of the S&P 500, which is a financial index comprised of shares of around 500 of the largest companies in the U.S. 

Here's what Stephan had to say about why the $SPY could be a better option for the money in your brokerage account. 

This is why Stephan likes $SPY

Stephan's chart showed the hypothetical growth on your investment portfolio if you invested  $10,000 in either the Fidelity Magellan Fund or in a Vanguard 500 index investor fund. In addition to showing the growth over these different investment options over time, he also explained that while the Fidelity Magellan Fund provided a 29% return for 15 years, "the average investor in it would have lost money."

While this seems difficult to believe, Stephan gave a simple reason: "The average investor in it would have lost money because they bought in bull markets and sold during market panic."

In other words, no matter how well a fund performs over a period of time, if you try to time the market, you're likely to end up losing money because it's too easy to panic and sell when you shouldn't. It's also too easy to buy near a peak because you feel like you're missing out.

Rather than focusing on finding the perfect fund, Stephan says you're better off simply investing in the S&P 500 over the long-term and staying invested. Since the S&P 500 has an extremely consistent track record, you don't have to worry about timing the market -- you can buy, leave your money alone, and have confidence in your investment performance over time. If you do this, you're likely to end up better off.

Is Stephan right?

Stephan is right that most people absolutely end up better off if they just consistently invest in an S&P 500 fund and leave the money alone. 

Of course, any time you take money out of your savings account and put it into the market, there's a risk of loss. That risk is minimal, though, when you're betting on the performance of 500 of the largest and best-known companies in the entire country. You're essentially making a bet on big business in America as a whole, and history has proved that's a great bet to make.

If you simply buy and hold the S&P 500, you can help avoid financial stress and know what you're going to get -- without worrying so much about how an actively managed fund will perform in different market conditions (or paying the fees that go along with active management). So, if you aren't sure what to invest in, $SPY could be a great option for you to consider.