Is S&P 500 A Good Buy?

Should I buy the S&P 500?

Have you ever felt overwhelmed by being exposed to too many types of things? Like at the mall? Like Tokyo and its many ads? If yes, the stock market isn’t really for you.

Wait!! Before you go, what if it is? On par with knowing when to sell, knowing what to buy is the primary cause of stress in the market. There are over 5000 companies you can buy from, so how do you know which one to buy? Which of the 5000 stocks will give you decent returns, or which is the next to go bankrupt  (file for chapter 11) ?

Legendary investor; Warren Buffett has answered this question in the simplest way available. He suggests you BUY 500 COMPANIES. Please hold on a minute!! I’m struggling to buy one company, how will I buy 500? The answer is simple and let’s get into it right away.

The stock market Index is a representation of the market. Like it is generally believed in physics that gravitational constant always equals  (6.67 × 10-¹¹)  or pi in mathematics to equal  3.142 , stock market Index is believed to show the market.
There are different indexes for different markets, but for this article, we’ll focus on the S&P 500.

The Standard & Poor’s 500 is an index of the 500 largest companies in the US by market capitalization. You can’t buy the S&P 500 directly, but you can buy funds that track the S&P 500. By buying a share of these funds, you have bought all the 500 companies in the S&P. That’s why Warren Buffett suggested you buy 500 companies.

Let’s look at reasons why this may be a good idea and some reasons we don’t advise buying it.

Why You Should Buy The S&P 500


Putting all your eggs in one basket is more like a blind risk than investing. It can make you overly rich or back to scratch. No matter how confident you are in your selection, it is still subject to forces beyond you or the company’s management. We advise that you have a good level of diversification. How do you know what to buy to diversify? You don’t need to. Buying the S&P 500 offers you automatic diversification. You have nothing to fear since the 500 stocks are not in the same industry.

Corrections and Crashes

If you bought Amazon in 1999, just months before the stock market crash, you’d have made around 5,000% returns. But that will be if you didn’t sell it when it lost 90% of its value (from $113 to $5. It is almost impossible not to sell). It took Amazon 12 years before it got back to the heights it reached before the crash. The S&P 500 recovered faster. The S&P 500, which suffered the same fate, recovered in six. You’ll always be sure of weathering the storm with the S&P 500.

Reasons Why You Might Not Want To Buy The S&P 500


So we won’t look partial; we’re going to continue with our Amazon vs. S&P case. Remember the crash we mentioned a while ago? Since their all-time low, Amazon has increased by over 26,000%. The S&P, on the other hand, increased by only 300%. To put it in perspective, if you invested $100 in Amazon, you’d have $26,000. The same $100 would give you $300 from the S&P 500.

Over Diversification

Remember, we said diversification is good. Yes. But imagine putting $50 to buy 500 companies. Doesn’t it sound awkward? Exactly. What do you expect to earn when you stretch your portfolio too thin? 

The Future Is Now

Five companies majorly move the S&P 500, which is a flawed representation of the overall market. These are big tech companies that probably will not do more than ×3. Some of the stocks that will be in the S&P 500 in the next decades and probably dominate it are still cheap and undervalued now. Would you go for stability or growth? Your choice is made now.

Instead of buying an S&P 500 fund, there are 3 stocks the Horao Community is discussing this quarter. You might want to consider them if you’re a long-term investor. Click Here

Tags :
IPO,stock,stock market
Share This :
Barnabas Okunlola