Investing your money is a fantastic way to make a profit over time. However, you can never have 100 % certainty when it comes to all forms of investment.
You can lose money in the process, especially if you develop a portfolio of stocks that are known to underperform. While extensively researching companies before purchasing them may reduce your risk of losing money, it is still a risk.
Investing your money into a safe investment can give you peace of mind. While there is no such thing as a risk-free investment, buying S&P 500 index fund UK provides some form of security.
What is S&P 500, and what makes S&P 500 index funds the perfect investments?
The S&P 500 is a popular stock market index tasked with tracking 500 large-cap firms in the United States. It shows the stock market’s performance by reflecting the major firms’ risks and returns. Investors use it as a market benchmark for comparing all other assets.
Going broad
Index funds are actively managed funds that aim to mirror the performance of the benchmark to which they are linked. S&P 500 index funds aim to perform similarly to the S&P 500 index, which is made up of 500 of the world’s best-performing publicly listed firms.
Though it’s possible to lose money with S&P 500 index funds, you’re much more likely to make profits in the long run. This is because the S&P 500 has a track record of producing good returns.
However, it does not guarantee that the S&P 500 always comes out on top, but from the records, it has produced an average yearly return of around 10.5 percent over the last 65 years.
And that’s not the only reason why S&P 500 index funds are such a good investment. There are a few other factors as well.
1. Easy to invest
When buying individual stocks, there are several aspects to consider, including cash flow, management, debt, risks, and opportunities.
Because you’re not investing a large sum of money in a single firm, S&P 500 index funds don’t necessitate such research. Rather, you’re purchasing a basket of shares hoping that they will do well over time.
2. Diversity all the way
It’s important to have a varied portfolio. Not only will this protect you against losses, but it may also contribute to increased wealth growth over time. The beauty of S&P 500 index funds is that they’re extremely varied, as you can buy 500 different shares with a single investment.
Consider this scenario: Instead of investing in S&P 500 index funds, you opt to focus on tech stocks. Your portfolio’s value might plunge if that sector collapses. While the S&P 500 does contain a number of tech firms, it also includes stocks from a variety of other industries.
Is the S&P 500 the ideal investment for you?
The legendary stock market investor Warren Buffett famously stated that a low-cost S&P 500 index fund is the surest bet most individuals can make. It’s easy to understand why. The S&P 500 has provided annualised total returns of 9% to 10% over a long time, and you can easily take part in a passive fund at zero cost.
Read next: What are ETFs?
