Should I just go all in on a S&P 500 ETF? Feels like that just makes sense at this point.
Money you don’t plan to use for a long time is money it pays to invest. That way, you can put it to work and help it grow into a larger sum. You have choices when it comes to…
Money you don’t plan to use for a long time is money it pays to invest. That way, you can put it to work and help it grow into a larger sum.
You have choices when it comes to investing your money. You could put together a custom portfolio of hand-picked stocks and other assets. Or, you could choose to invest in the broad market instead.
In this Reddit post, we have someone who’s spent the past decade investing in different ETFs and stocks, along with a small amount of bonds. Their portfolio has underperformed the S&P 500 most years, so they’re wondering if they should go all-in on an S&P 500 ETF at this point.
It’s a good question to be asking. And you should know that there are pros and cons to investing in S&P 500 ETFs.
Less complication, but less upside
The benefit of putting your money into an S&P 500 ETF is that you don’t have to do a lot of research or portfolio management. An S&P 500 ETF basically manages itself while giving you a portfolio that’s instantly diversified.
The poster above said they’re concerned that investing in S&P 500 ETFs is too risky. The reality is that any investment in the stock market carries risk.
However, if you’re many years away from retirement, or whatever milestone you’re investing for, you have time to ride out downturns. And if you want your money to grow at a decent pace, then it pays to go heavy on stocks.
That said, there’s a big drawback to an S&P 500 ETF strategy you should know about, and it’s that your upside may be limited. You may find that you’re able to earn better returns with a portfolio of select stocks, provided you choose the right companies.
Another issue is that while an S&P 500 ETF might generate strong returns over time, you shouldn’t expect much in the way of dividend income. That’s not necessarily a problem, but it’s something you should know about.
Should you put all of your money into an S&P 500 ETF?
Depending on how your portfolio is set up now, you may find that you’re able to do better by investing in an S&P 500 ETF. But before you do that, ask yourself this important question: Am I okay with my portfolio not beating the market?
When you put your money into an S&P 500 ETF, you need to be okay with matching the performance of the broad market. However, you shouldn’t expect your portfolio’s returns to outpace those of the stock market on a whole. If you’re not okay with that, then a custom portfolio may be a better bet.
That said, if you’ve been getting lower returns than what an S&P 500 ETF would’ve given you, it’s clearly time to make some changes. To that end, you may want to hire a financial advisor to help you put together a portfolio. A financial advisor can take the time to research different stocks and help you create an investment mix that aligns with your risk tolerance and goals.
You may also decide that you want a portfolio that’s filled with hand-picked stocks as well as shares of an S&P 500 ETF. There’s nothing wrong with that approach, either, and it may give you the best of both worlds.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
