Buffett Advises: Common Investors Can DCA S&P500
During bear markets, both uncertainty and the velocity of downside moves can cause investors to make rash decisions. Many investors are concerned about when and where the stock market will bottom. Which stock is undervalued? I would appreciate any comments on these questions.
Warren Buffett recommends S&P 500 for most folks
Investing in the $S&P 500(.SPX)$ is a good choice if you are unsure of which stocks to choose. Warren Buffett likes index funds — especially those that follow the S&P 500. “In my view, for most people, the best thing to do is own the S&P 500 index fund,” said Buffett in May 2022.
Warren Buffett has endorsed the S&P 500 more than once. In 2014, Buffett stated in a letter to shareholders, "My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund."
What is S&P 500 index？
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. According to our Annual Survey of Assets, an estimated USD 15.6 trillion is indexed or benchmarks to the index, with indexed assets comprising approximately USD 7.1 trillion of this total (as of Dec. 31, 2021).
The index includes 500 leading companies and covers approximately 80% of available market capitalization. Among the top 10 constituents are Apple, Microsoft, Amazon, Tesla, Google, Berkshire, Johnson & Johnson, etc.S&P 500 composition is dynamic, and it includes/excludes many companies depending on the current market conditions.
What makes S&P 500 index funds a great investment?
1 DiversityYou can own 500 different stocks with a single investment if you invest in S&P 500 index funds because they're very diverse.
2 Easy to invest When you purchase individual stocks, you need to consider different factors. These include cash flow, debt, management, threats, and opportunities.
It is not necessary to consider these factors when investing in the S&P 500.The chart below shows the trend of the S&P 500. It has risen by an average of more than 12% per year since 1957, excluding compound interest, which is significantly higher than any financial return. Warren Buffett has stated that the best way to invest for most people is to invest in the S&P 500 index.
What is the best time to buy the S&P 500?
Even though the S&P 500 is up 12% on average, it does not necessarily mean that it is a good investment at any given time. In 2000, when the Internet bubble burst, the S&P 500 also retreated 40%, and during the financial crisis in 2008, it retreated 38%. Losses are equally staggering if you buy at a high point and do not hold it for a long period of time.
What is the best time to purchase? It is still difficult to determine. Analysts, even experienced ones, are sometimes wrong about the movement of the S&P 500. I understand that trying to predict short-term movements is difficult for most investors. A quotation states, "Stepping into the market with precision is more difficult than catching a flying knife in the air."
However, if we extend the time frame, the fault tolerance rate of investment will become higher. According to the chart below, the S&P 500 had seven negative 5-year average returns and two negative 10-year average returns over the last 50 years; while over 15 years there were no negative returns. The S&P 500 has a 15-year average return of 4.24%, with a median return of 10%, even during the worst years of returns.
An automatic investment plan is a good option if investors can't predict S&P 500's short-term moves. It will bring benefits in the long run. For example,In Method 1, if we decide to invest USD 10,000 in January, and the price of SPY is 476.3, we can purchase 20.9 shares of SPY.In Method 2, if we invest USD 1,000 every month into the S&P 500 index in 2022, we will be able to buy 24 shares of SPY.
|number of shares||2.099517111||2.218869264||2.298639206||2.205995897||2.42677215||2.408651878||2.65561929||2.444091409||2.545241671||2.76946937|
Source from TIGER TRADE
Invest in the S&P 500 with anETF
Like index funds, passively managed ETFs seek to replicate the performance of a market index, such as the S&P 500. In order to duplicate the holdings of the benchmark index, fund managers purchase a basket of securities. Investors can buy the ETFs and own these shares. Below is a chart showing passively managed ETFs that track the S&P 500 index.$SPY(SPY)$ $IVV(IVV)$ $VOO(VOO)$ $SPLG(SPLG)$ $ProShares Short S&P500(SH)$ $Direxion Daily S&P 500 Bull 3X(SPXL)$ $SSO(SSO)$
When picking an S&P 500 ETF, you should consider the following key factors:
- AUM.Consider the size of the assets under management, generally the higher the better.
- Liquidity. Funds with higher average trading volumes are more liquid, and ones with lower trading volumes are less.
- Expense ratio.As with S&P 500 index funds, S&P 500 ETFs all have similar performance. It is better to select a fund that has a low expense ratio
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.