If investing in the S&P 500 is such a surefire way to make money, then why isn't everyone doing it?
First, lots and LOTS of people (and companies do it).
Three reasons people don't do it:
Some people believe they can make even more money by putting it into something else (other riskier stocks, non stock investments like their own sole proprietor businesses, bitcoin, scratcher lottery tickets).
Some people are entirely risk averse. If they can't SEE their money they don't trust where it is so they buy precious metals or stack cash up. Neither of these are good investments for returns, but are generally safer that index investing (which is what S&P500 is) if you need to sell on short notice.
Investing anything requires money you don't have to spend somewhere else. Lots of people are at negative money, so they don't even have a dollar to invest.
It's not entirely without risk. 2008 saw the S&P lose over 30% for the year, and 2002 was over 20%. But it is up more often than down year-to-year, and it is usually up by at least 10%.
I found some good charts here, even though it is a EU site:
If you are investing for the long haul , you will take the occasional 30% haircut if you can get 10-20% the rest of the time. But it would suck if you got that 30% haircut just before you needed to sell....
A large number of us CAN be millionaires. Which is a problem.
It took me roughly 40 years to become a millionaire. 40 years of investing in stable stocks and bonds and scrimping and living well below my means. I was finally able to afford to buy a house. Then the market boomed and suddenly I’m worth over a million.
Unfortunately, almost all of that is tied up in owning a small plot of land. If I sold it, I’d need to immediately use it to buy another small plot of land, or leave my city or go back to extortionate rent. And yet I need to pay monthly taxes on that land, or I no longer own it.
Where I used to spend $90/month on food, now I spend well over $500/month.
Essentially, if you’re over 55 and you’re not a millionaire and you’re living in a major city, you’re screwed because of inflation.
Not everyone has money to do it, and not everyone knows you can do it. Also, as the dollar devalues most everyone will become a millionaire, but being a millionaire won't mean what it used to anymore -- which is already the case.
Going to the gym and eating healthy is a surefire way to look good and have a longer healthspan too but most people aren't doing that either. Why? Probably because it takes time and effort.
Also I'm not sure how many people have the patience to not touch the money once you get into tens or hundreds of thousands. I could pay off my house with my savings but I wont.
Investing is something you do for the long run. Investing today and getting it all out in a month will probably make you lose money. The market will always go up and down but zooming out, it will go up. Investing in the long run will make you money. Investing in the short run, will make you vulnerable for market ups and downs.
So my tip is, invest a monthly a fixed amount of money every month (dollar-cost average) and don't touch it for the next 5 years. Yes, also keep your hands off it when the market is going down.
I don't like investing in the S&P 500 because it's supporting the biggest most monopolistic companies out there. Russell 2000 helps, but it has CO2/sustainability concerns. But since big companies usually get bigger because the US has laughable anti trust/monopoly legislature, betting on the big ones is pretty safe.
As for sustainable in the long run, it lets those companies effectively have really low interest rates. It benefits big struggling companies like Boeing so they can borrow at low rates to prop up their business for a while. But with too much investment, you'd give even more leeway and safety nets to the biggest companies.
A lot of people do this with 401ks and such because many times there aren't many other options.
People I know who are serious investors with a lot of money tend to not invest much in the S&P 500 because they think of themselves as superior investors, but I don't know of anyone for whom this is actually true based on past performance.
I invest some 20% of my money in the S&P 500, which is probably not as much as I should. It's some combination of the above hubris, which is natural, wanting to be diversified, and enjoying gambling on individual stocks.
Something I've not seen mentioned here yet is that one of the reasons it's such an effective way to make money is specifically because loads of people are buying into it. When you buy a stock (or a derivative like an S&P 500 index tracking fund), it increases its price. If you're just one person with a normal-person amount of money, it won't be enough to register, but if you're part of a group of millions of people, or an investor with billions at your disposal, it'll make a visible difference, and if people see that happening consistently, they'll want to join in and there'll be a positive feedback loop. It only stops when there's a big enough panic that lots of investors can no longer afford to maintain their investment and have to sell at the same time, and then you can even get a positive feedback loop in the other direction when people see the price plummeting and decide they need to sell before it plummets any further.
Stocks are supposed to represent the value of a company's current assets and expected future profits, but this kind of feedback loop muddies the water. With something like Bitcoin, which intentionally has no inherent value, because enough people have agreed to pretend otherwise, it's gained effective value, and can be exchanged for money, or in some cases, goods and services. That'll remain the case until everyone agrees that they don't want Bitcoin, so could go on forever.
Because its gate kept, particularly outside the US we don't have any way to invest that doesn't require some fee, so you need to be rich enough that your investment will make you more than the monthly fee to the broker. Then as a non cajillionare if the particular fund your invested in goes bust you get completely fucked over because debts are paid out to the largest creditors first.
To start, I'm assuming you're talking about low-cost index funds tracking the S&P500. All of the "actively managed" funds tracking an index are, IMO, farces designed to extract money for the fund managers rather than delivering value to the (index fund) share holders. A passively-managed index fund is a fairly boring (and cheap) operation to manage, primarily buying and selling shares to keep the same proportions as the tracked index, be it the popular S&P500, the CRSP Total US Market index, or any other imaginable index. The low-cost appears in the very low expense ratio, some measured in single-digit hundreds of 1 percent (eg 0.04% for VTSAX).
As for whether an index fund tracking American large-cap stocks is a "sure fire" investment, absolutely not. Any investment needs to be viewed in terms of its appropriateness, such as being properly diversified (within one's abilities) and the timescale must match one's financial objectives. The conventional adage is that everyone would like to win the lottery, but when pressed for a more specific answer, most would say that they just want to live without worrying about finding an income. That is to say, they're just looking for "enough".
Practical financial advice aims to sustainably achieve "enough", usually framed in terms of retirement but quite frankly, the process works for all sorts of goals, such as saving for higher education for oneself or a child, buying a car, building a marriage dowry, or planning to support aging parents. What's distinct with these scenarios are: the amount needed, and the time remaining to achieve that amount.
For a mid-20s newly-employed knowledge worker (eg mechanical engineer), they have about 40 years until retirement age. Time is a very valuable asset, because time can overcome short-term problems like economic recessions or high interest rates. Even if a recession strikes just prior to turning 65, the nest egg will have grown with 40 years of dividends prior to the recession taking a small haircut. Alternatively, starting one's career in a recession means post-recovery investments will bolster the savings.
The large-cap index funds (like S&P500) are high risk, high reward. For someone with a long time horizon and a good savings rate like a young professional, large-cap makes a lot of sense. But having only large-cap would be wholly inappropriate for a retired octogenarian who just needs to draw a steady income to pay their living expenses. After all, having already gotten so far in life, the meaning of "enough" changed from "high growth of nest egg" to "drawing down the nest". So this retired person would probably have gradually swapped out most their index funds for things like bonds, which pay less in dividends but are steady even through recessions and bad times. But they might still keep a small portion in large-cap, in case they live longer than expected.
Put money into index funds every paycheck and don't sell them for 30 years. Compounding returns are damn strong. And yes, lots of people do it, it is the most straightforward and common strategy.
Investing money generates more production and profits, it is very much so not a zero-sum game. There is good reason the average standard of living has increased dramatically over history, and it has increased faster in modern economies with strong monetary availability and movement, something investing directly contributes to.
If anyone says anything is "a surefire way to make money", they are looking for a Greater Fool on which to unload their position so they can actually make the money.
Cuz it's not a "surefire way to make money".
In the 2000s it was flat or went down even for like a decade after the dot com bubble.
When the AI bubble pops and the recession comes it might be like that again.
Nothing is surefire, but I've seen the S&P 500 informally considered the baseline, especially when comparing actively managed funds. If you're paying more and under performing the S&P 500, even if making a profit, you're loosing out.
With regard to the point about everyone being millionaires, from a macro economic lens, all the dividends you receive from investing in the S&P 500 is because they're charging more than enough for a product to cover operating costs, business expenses, etc and still have enough to pay out share holders. This means someone somewhere is loosing out, and that money is being transferred from them to you through the companies.
Most people dont invest. It sustainable in the long run cos their is a limited supply the more people who buy the more expensive it is for anyone else to buy.
Well you need to put a fair amount in for a long time to get that millionair. If you are 20 now you can get there by 40 by maxing out your 401h, but if you are 75 now maxing out the 401k may not have got you there. Many young people have student loans so they can't max out the 401k and have enough to live. There is also saving for a house in there. And only about 50% even have a 401k option - ira limits are such that I'm not sure you can get to a million with them. Many people also don't make much even if you get a 401k at fast food (30 years ago they gave you that after 10 years in the store I worked in - when you maxed out and didn't get raises)
last but perhaps most important there is opportnity cost. several of my classmates have died in accidents long before they could retire. death rates from non accidents start to raise around 60-65 so even if you retire you may not have long to enjoy that wealth. For all of the above people they should have saved zero and enjoyed life young. Of course odds are you will retire but don't pin all your hopes on life after, start living now. Even if God tells you that you will live to 100, your body will start to have issuse starting between 40 and 55 - there are some activites it will be too late if you don't do them young - so go climb that mountain if you want.
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