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.
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The best investment you can make is flossing every day.
In my experience:
- 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.
This is my approach.
I have hubris. But also some self-awareness.
20-50% into broad market indexes. 50-70% into messing around and generic picks.
Of my own picks, only a few have outperformed the s&p50p. Some are... not good. If I happen to find another nvidia I'll be very happy. If I don't, I'll be able to retire at a not unreasonable age.
If there was a way to gain more than the S&P then in theory the market would find that gain and reduce it to being the same as S&P. If investing in all stocks would be better then Vanguard all stocks index would be better.
Hedge funds and managed funds for "serious investors" try to get better than the S&P and some succeed but most fall below. Is general not everyone is doing it but by the way things are now everyone really should. It's a surefire way to get 4% + inflation.
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.
If exercise makes you so healthy why doesn't everybody do it?
"You need money to make money."
Additionally, making more money is MUCH easier when you have money too start with.
making more money is MUCH easier when you have money too start with.
Well yeah... You can avoid labour if you got capital
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.
You have to pay a monthly fee to a broker? I can buy an index fund right now and only pay $10.
Well, not entirely true. I use broker that has no fees for cheapskate scum like me, only having brokerage fees for trading 100k € in a month.
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.
- A ton of people rely on the advice of financial advisors who don't have their interests in mind and who sell them mutual fund packages with high expense ratios that do poorly long term. These people generally lack the financial knowledge to know any different.
I was one of these. I started my IRA in my 20s with what little money I could put into it. When I left a job I'd roll my 401k back into my IRA under the same Edward Jones advisor.
After over more than 20 years I started questioning it. I asked for statements of all of my deposits. I took those dates and deposit amounts and plugged them into a basic historical simulator to see what would have happened if I put the same money into an S&P500 fund. My real investment account was over $40,000 lower than had I just put the money in myself into the S&P500. I dropped that advisor and transferred my entire balance into VTSAX and never looked back. Future deposits went into my own brokerage into boring index funds from then on.
I credit Edward Jones with making saving for retirement stupid easy for myself a dumb 22 year old at the time. However, I should have wised up sooner and it cost me at least $40,000 for my naïveté.
The stock market and investing (at least investing for the average person) is supposed to seem hard, and complex, and impossible to understand because how else are those thousands of mid-level Edward Jones employees and their ilk supposed to make a living?? Has no one thought of their incredibly easy white collar jobs??!!?
Because it needs spare money.
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.
Millionaire today is a family with a house and two 401k which are underfunded for their age 🤡
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.
A large number of us CAN be millionaires.
It's actually technically correct that we all can be millionaires, at least on a household basis. The mean household wealth in the US was $1.06 million as of 2022, by now it's undoubtedly higher. So with a full redistribution of wealth every household would have over $1 million.
In reality though the median household wealth is just under $200k as of 2022, and doesn't rise as consistently so who knows where it is now.
So half of US households have less than 200k to their name lol
Ie half the country got nothing in practice.
200k wont save you from a catastrophic health event. Your family is BKed
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.
If you are young a down market is a great opportunity to buy. That ten years allows you to pick up stock and build your portfolio.
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:
https://curvo.eu/backtest/en/market-index/sp-500?currency=usd
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....
But it would suck if you got that 30% haircut just before you needed to sell…
For the average middle class individual or family, they'll never sell all of their investments, but only small amounts each month to cover monthly expenses when they retire, so even in the situation of a 30% decrease, they're only selling off a fraction of a percent of their portfolio each month
If you got that 30% haircut just before you needed to sell
Yep. They key part is to invest for 20, 30, 40 years, where those consistent 10-20% gains compound and vastly outweigh the occasional 30% losses. Even if you had invested at the worst time in 2007, you are currently up 285%.
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.
I mean if your house credit interest is higher than the return of investment of the S&P500 then you probably should pay it off :D
Yeah, but it's not.
We can, though. Index funds invest in large swathes of companies - meaning that they are taking part in the productivity of the companies involved.
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.
Not everyone is actually aware of this.
And in a way, lots of people are doing it through their retirement savings via mutual funds.
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.
This is particularly concerning to me with most of the wealth belonging to generations that are now retiring and selling off their stocks to fund their retirement.
That + climate change + authoritarian/strong man government's looking more likely makes me nervous about the long term stock market.
I guess that's not new though.
The PE ratio is 30 currently which feels high....
There's a reason the stock market has generally been in the dumps since Trump's election. Big investors don't like the risk he poses and shifted to safer investments
There a many traders acting as price finding mechanism for individual stocks. The situation you described is not so as evidenced by companies getting added to and removed from various indexes
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.
For a longer discussion about investing according to one's definition of "enough", I would recommend reading some pages from the Bogleheads community, like this one: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy
there are reasonable odds that one of a couple will live 30 years after retireing (oiten there is an age difference so just expected lifespan may get you 20). Retired people should still have some long term investments. Not 100% like a 30 year old but not zero.
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.
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.