Why You Never Need an Alternative Investment With This Money Tactic

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It’s an easy way to set yourself up to grow wealth over time. 

If you have money you’re reserving for emergencies and unplanned bills, it should sit in cash in a savings account. But money you have beyond that is money you should invest, whether in a brokerage account or an IRA for retirement.

Now when it comes to investing, you have plenty of options. And you may feel compelled to get creative when it comes to building your portfolio. That could mean buying individual stocks or branching out into alternative investments like real estate and cryptocurrency.

But if you’d rather take a simplified approach to investing, then it pays to put your money into the broad market. Doing so could spare you a world of stress while setting you up for solid returns.

Why it pays to invest in the S&P 500

You’ve probably heard of the S&P 500 index, and in case you’re not sure what it is, it’s a market index that’s made up of the 500 largest publicly traded companies. Companies that are a part of the S&P 500 index generally tend to be larger and well-established. And that can be comforting to investors.

But that’s not the only reason to focus your investing strategy on S&P 500 index funds or ETFs. The other reason is that the S&P 500 has consistently delivered excellent returns over time.

This doesn’t mean the index hasn’t had its share of bad years. But over time, it’s returned an annual average of 9.7%, said investing expert Charlie Bilello in a recent tweet. And while Bilello acknowledged that going all-in on the S&P 500 index does carry risk, as he said, “There’s no upside without downside, no reward without risk.”

So, let’s say you put $10,000 into S&P 500 index funds (funds that will simply aim to match the performance of the S&P 500). Let’s also say you don’t add another dollar, and that your portfolio delivers an average annual 9.7% return through the years. In 25 years, you’ll be sitting on a little more than $101,000. All told, that’s over 10 times your initial investment.

A solid bet for experienced investors and newbies alike

When you invest in the S&P 500, you’re effectively investing in the broad stock market. And that’s important, because you’ll often hear that having a diverse portfolio is the key to success.

Keep in mind, though, that this strategy really only works well when you’re investing over a long period of time. On a year-to-year basis, the S&P 500 has the potential to lose money. Just look at what happened in 2022 as a prime example. So if you’re going to pump most or all of your assets into the S&P 500, make sure you’re willing to keep your money there for a decade or longer.

Investing in the S&P 500 carries risk. But it might carry less risk than alternative investments like crypto, and it may even be less risky than building a portfolio of individual stocks you pick yourself. So there’s absolutely nothing wrong with taking what could be the easier, less stressful way out and falling back on the S&P 500 to build wealth of your own.

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