3 Reasons To Invest In The S&P500! (Don't Miss Out!)

Summary

The video discusses the S&P 500's popularity among investors, highlighting the US stock market's innovative history exemplified by companies like Disney, Apple, and Tesla. It showcases the S&P 500's impressive long-term returns, outperforming global indexes over the last 40 years. The video also addresses the index's current high valuation and concentration risk, suggesting the importance of considering global diversification in investment portfolios.

Takeaways

• 📈 The S&P 500 is a favored investment among the public and the speaker, with the top three exchange-traded funds being S&P 500 trackers.
• 🚀 The US stock market is popular due to continuous innovation by American companies over many decades.
• 🎢 Examples of innovation mentioned include Disney's theme parks, Apple's iPhone, Amazon's online retail, Tesla's electric vehicles, Microsoft's Windows OS, Google's YouTube, and Netflix's streaming services.
• 💹 The collective innovation of US companies sets them apart from their global peers, leading to the S&P 500 outperforming other indexes.
• 💰 Over the last 40 years, the S&P 500 has seen returns of 3,274%, illustrating its long-term superior track record.
• 🌍 When compared to other world indexes, the S&P 500 has delivered better total returns, both in the long and short term.
• 💷 The value of companies is determined by their market cap, which is the product of the number of shares and the share price.
• 📊 Earnings growth is a key driver of stock price performance, with the S&P 500 showing a year-over-year earnings growth rate of 11.3% as of Q2 2024.
• 📉 In contrast, the FTSE 100 has seen a decline in earnings over the past three years, which may not be as attractive to investors.
• 🏦 The S&P 500's high valuation could be seen as both a benefit and a drawback, with a P/E ratio of 28.9 indicating a potentially expensive market.
• 🔮 While the S&P 500 has performed well historically, the speaker acknowledges that past performance is not a guarantee of future results and suggests considering global diversification.

Q & A

Why is the S&P 500 a popular investment choice?

The S&P 500 is popular because it represents the top 500 companies in the United States, which are known for their innovation and growth. It's favored by retail investors and has a strong track record of long-term returns, with the top three exchange-traded funds being S&P 500 trackers managing over $1.5 trillion in assets.

What is the significance of Walt Disney's innovation in the context of the US stock market?

Walt Disney's innovation is highlighted as an example of the kind of groundbreaking thinking and execution that has been a hallmark of US companies, contributing to the US stock market's appeal. Disney's ability to create and execute on big ideas has resulted in a multi-billion dollar organization, which is symbolic of the innovative spirit found in many US companies.

How does the S&P 500's performance compare to other world indexes over the long term?

Over the last 40 years, the S&P 500 has seen returns of 3,274%, significantly outperforming other world indexes. For instance, if you had invested £10,000 in the S&P 500 in 1984, your portfolio would be worth $327,400 today, whereas the same investment in the UK's top 100 companies would yield a much smaller return.

What is the role of innovation in driving the value of companies in the S&P 500?

Innovation is a key driver of value in the S&P 500. Companies that can innovate and generate future value are more likely to see their stock prices rise. The US has a strong history of innovation, with companies like Apple, Amazon, Tesla, and others leading in their respective fields, which contributes to the S&P 500's overall performance.

What is the impact of earnings on the S&P 500 index?

Earnings on a per-share basis are directly correlated to stock price performance. The higher the collective earnings within the S&P 500, the higher the index will rise. According to a report from FactSet, the S&P 500 had a year-over-year earnings growth rate of 11.3% as of Q2 2024, marking the highest growth rate since Q4 2021.

Why might the high valuation of the S&P 500 be a concern for investors?

A high valuation, such as the S&P 500's price-to-earnings ratio of 28.9, indicates that the market is considered expensive compared to historical averages and global peers. This could mean that investors are paying a premium for every dollar of earnings, which might not be sustainable and could pose a risk if the market corrects or if earnings do not meet expectations.

What is the concept of 'concentration risk' in the context of the S&P 500?

Concentration risk in the S&P 500 refers to the fact that a small number of companies, such as the 'Magnificent 7' (e.g., Apple, Microsoft, Amazon), make up a significant portion of the index's total value. This means that adverse movements in these companies can disproportionately affect the index's performance.

How does the performance of the S&P 500 compare to other indexes on an annualized basis?

On an annualized basis, the S&P 500 still outperforms other major world indexes in terms of total return. This is evident in the historical data, which shows that the S&P 500 has consistently delivered higher returns than its global counterparts.

What is the significance of the 'market cap' or market capitalization in investing?

Market cap, or market capitalization, is a measure of a company's value calculated by multiplying the number of shares in circulation by the company's share price. It's an important metric for investors as it provides an indication of a company's size and value, which can influence investment decisions.

Why might an investor consider diversifying beyond the S&P 500?

While the S&P 500 has a strong performance history, diversifying beyond it can help mitigate risks associated with concentration in a single market or index. It allows investors to spread their investments across different geographies, sectors, and companies, potentially leading to a more balanced and resilient portfolio.