As the S&P 500 enters bull market territory, here's what to consider before you invest

People stroll via the Financial District by the New York Stock Exchange (NYSE) on the final day of buying and selling for the yr on December 29, 2023 in New York City.

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The S&P 500 inventory index climbed to a new all-time high on Monday.

A bull market — by two definitions — is right here. Last yr, the S&P 500 rose greater than 20% from its most up-to-date low. As of Friday, it crossed another bull market threshold when it surpassed its earlier excessive.

For buyers who need to get in on the motion, the excellent news is that investing in a fund that tracks the S&P 500 index is an simply accessible technique.

But specialists say it additionally deserves a phrase of warning: Past efficiency shouldn’t be indicative of future returns. And whereas the S&P 500 was a transparent winner in 2023 — ending the yr up 26%, together with dividends — it might not be the technique that comes out forward at the shut of 2024.

What is the S&P 500 index?

How can you invest in the S&P 500?

Today, buyers could select from mutual funds or exchange-traded funds that monitor the index. Among the greatest ETFs are: SPDR S&P 500 ETF TrustiShares Core S&P 500 ETF, and Vanguard S&P 500 ETF.

Vanguard in 1975 created the first index mutual fund that tracked the S&P 500. Vanguard founder John Bogle was famously a proponent of investing in a broad index fund.

“Simply purchase a Standard & Poor’s 500 Index fund or a complete inventory market index fund,” Bogle wrote in his ebook, “The Little Book of Common Sense Investing.”

“Then, as soon as you have purchased your shares, get out of the on line casino — and keep out,” he wrote. “Just maintain the market portfolio eternally.”

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For inventory buyers who need to hold their methods easy, specialists say the strategy can work.

“Among the higher selections individuals could make is beginning with an index-based fund monitoring the S&P 500 as a result of it really works,” Todd Rosenbluth, head of analysis at VettaFi, recently told

Over time, passive methods have proven higher returns than actively managed funds. Moreover, the price of these funds is way decrease in contrast to lively methods. Together, that mixture is tough to beat.

“I do not suppose particular person buyers or cash managers can typically outperform the S&P 500,” stated Ted Jenkin, an authorized monetary planner and the CEO and founding father of oXYGen Financial, a monetary advisory and wealth administration agency primarily based in Atlanta. Jenkin can be a member of the CNBC FA Council.

When does it pay to diversify?

The larger a portfolio’s publicity to the S&P 500 index, the extra the ups and downs of that index will have an effect on its steadiness.

That is why specialists typically advocate a 60/40 cut up between shares and bonds. That could also be prolonged to 70/30 and even 80/20 if an investor’s time horizon permits for extra threat.

Moreover, completely investing in the S&P 500 on the inventory facet of a portfolio could also be limiting if different areas of the market show extra profitable in 2024.

In 2023, the S&P 500 was up round 26% for the yr, besting different methods like a U.S. small cap index fund or a global inventory index fund, famous Brian Spinelli, an authorized monetary planner and co-chief funding officer at Halbert Hargrove Global Advisors in Long Beach, California, which was No. 8 on CNBC’s FA 100 list in 2023.

It could also be tempting to throw out these different methods and simply go along with the one which did rather well final yr, Spinelli famous.

“But I would not go overboard,” Spinelli stated. “You should not be 100% U.S. giant cap and let it sit there and count on the similar degree of returns we have seen over the final 5 years.”

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