As the S&P 500 enters bull market territory, here's what to consider before you invest (2024)

FAQs

As the S&P 500 enters bull market territory, here's what to consider before you invest? ›

The greater a portfolio's exposure to the S&P 500 index, the more the ups and downs of that index will affect its balance. That is why experts generally recommend a 60/40 split between stocks and bonds. That may be extended to 70/30 or even 80/20 if an investor's time horizon allows for more risk.

The simplest way to invest in the index is through S&P 500 index funds or ETFs that replicate the index. You can purchase these in a taxable brokerage account, or if you're investing for retirement, in a 401(k) or IRA, which come with added tax benefits.

Investors who want to benefit from a bull market should buy early in order to take advantage of rising prices and sell them when they've reached their peak. Although it is hard to determine when the bottom and peak will take place, most losses will be minimal and are usually temporary.

Is Investing in the S&P 500 Less Risky Than Buying a Single Stock? Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.

The two investments held in Berkshire Hathaway's portfolio that Buffett recommends more than anything else are two S&P 500 index funds. The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO).

Assuming an average annual return rate of about 10% (a typical historical average), a $10,000 investment in the S&P 500 could potentially grow to approximately $25,937 over 10 years.

Behaviour mistake 1: Selling in a panic at all-time highs

After all, they say, "Buy Low, Sell High." But here's why this might not be the best idea: All-time highs are a normal part of long-term investing in stocks. They are essential for the stock market to grow and generate returns.

In a bull market, the ideal thing for an investor to do is to take advantage of rising prices by buying stocks early in the trend (if possible) and then selling them when they have reached their peak.

Can you live off the S&P 500? ›

Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.

Short-term volatility: while the S&P 500 historically provides strong annual returns over the long term, it's not immune to market volatility. Investors must be able to stomach short-term price swings and even sustained periods of market downturn like a bear market.

One of the most common methods of analyzing stocks is to look at the P/E ratio, which compares a company's current stock price to its earnings per share. P/E is found by dividing the price of one share of a stock by its EPS. Generally, a lower P/E ratio is a good sign.

Investors holding S&P 500 index funds try to match the performance of the index, not to outperform it. Therefore, they can use the buy-and-hold strategy of investment, also known as passive management. There is no need to actively monitor the stock market movements and engage in intense intra-day trading.

Another option is a short-term certificate of deposit (CD), which offers a fixed interest rate for a specific period of time (usually 6 months to 5 years). You could also consider investing in a money market fund, which is a type of mutual fund that invests in short-term, low-risk securities.