The Best Index Fund Investing Strategy Based on 150 Years of S&P 500 History
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- เผยแพร่เมื่อ 2 ก.พ. 2020
- I looked at 150 years of 10, 20 and 30 year returns delivered by the S&P 500 index fund to give an answer what is the best and probably only index fund investing strategy that works.
Index fund investing, that can be easily done through a low cost Vanguard index fund vehicle can be a great way to invest your money but you need to know what to expect from such an investment vehicle and how to approach.
Based on the historical analysis of index fund investing performance, I share 3 key factors to watch that will help you properly invest in index funds. It is not about the index, it is about the investor.
Index fund investing explained video content:
1) Can index funds deliver 10% per year?
2) What can we expect from index funds over the next 10 to 30 years
3) Best index fund investing strategy
4) Investing in index funds versus stocks
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#indexfunds #vanguard #stockmarket
Index funds did great and can be great for you in the future - all that matters is that you adjust your expectations to reality!
I'll do you one better. An infinite return. I bought a property in Hawaii for $150,000 cash, got a $100,000 interest-free loan that I paid off. On top of this, I have already cash out refinanced approximately $180K in tax-free equity, which is $130K more than my initial out of pocket $50K (already an infinite return after the first cash-out refinance in 2015). Going to sell in 2 months for another $50K gain that I will pay zero taxes on (1031 exchange).
So let's review, an infinite return, $180K profit, not counting the 6 years of cash flow I received.
Going to to the same thing on another property this year.
Where is your infinite return on a stock? ;)
@@Re3iRtH its not an infinite return, because you have cashed out, last week i bought some stock for my shop, a couple of days later i sold it. i can reinvest and do it all again every couple of days, i average a total stock turn in my store every 3 to 4 months. I bought some shares and they pay a dividend twice a year, until i sell them they are an infinite profit.
@@markesdot6598 If I have pulled out all of my original investment and I get income coming in every month, to me it's an infinite return. I guess if you 2-3X a given stock, cash out your original $$ amount, and still get a dividend it's an infinite return. Difference is, you still pay tax on your stock dividend, while I will legally pay $0 tax on leveraged real estate due to phantom depreciation.
@@Re3iRtH in UK no tax to pay if funds or individual shares held within an isa account. No tax on capital gains or income, even when withdrawn from the account. And how are you getting infinite return if you've sold the property. Are you sure you aren't liable for tax in Hawaii, the country where you brought and sold the property as you weren't living in it. Maybe you've broken the law in Hawaii
Year late but individual stocks over index funds is what I am interested in.
just started building my portfolio. have had some stock for a couple of weeks that are fun to watch go up and down, and just bought my first index fund, great to see a long term strategy explained so simply.
just keep learning, knowledge will pay huge dividends over the long-term
Thanks Sven. Ur channel is high value. I listen to learn, but I'm responsible for my decisions. No one talks me into anything
Thanks! It is all about you!
Excellent video, Sir. I'm an index fund person as I've been influenced by Jack Bogle's legendary book "the little book of common Sense investing." Really appreciate your thorough, numbers driven advice. Keep the good content coming.
Thanks!
Nice video but prefer individual stocks over index funds not to mention the risk as were heading for a possible recession what could crash the market maybe it is usefull to hold them shorterm to make something on the side as a trader.
The more I am watching your videos and following the course, I learn more and it is becoming more clear what to do. Thank you! I personally have some invested in the Real state etf (TRET) and Sustainable world ETF (TSWE) of VanEck products along with some bonds which I will replace with TRET and TSWE next year. However, I have invested almost double in individual stocks and would like to learn more about business and stocks in the future.
Thanks!
Great video! Thanks.
I using a non- taxable account for S&P index fund as my core to the portfolio and add each month 10% of my total income, planing for the long term (40 years)
And in my brokarage account i am inveating in value stocks only.
Smart:-)
Another great video Sven! 👍🔥💲
You can also do both, index plus stocks/active investing:)
Sven, enjoyed you video. Very rational, and long term reminder of the fundamentals. A good contrast to the nattering nabobs over at CNBC. Semi-Retired, and withdrew most of my money from the market September 2018. Re-deployed into a individual stocks where I have some expertise. Waiting for an opportunity to re-deploy with safety and dividends in mind. Will probably go back in with a combination of Bonds, some index funds, and a few stocks where I have expertise. Have a 4-plex which pays all my expenses and insulates me from the swings of the equity/bond markets
that is it - pure, profitable diversification! Thanks!
Thank you Dr excellent video, stocks and real estate one of the few investments have long term potential Love Freedom
Thanks Sven!!!
Thanks a ton Sven.. Excellent information..😊I usually do lumpsum of a particular proportion when S&P 500 goes down.
If S&P500 is down by 10%, I shall deploy additional 2% of my total equity investment.If S&P500 is down by 20% from all time highs, I shall deploy 5% of my total equity investment.This had paid me well during last 4-5 years.
I like to have 30% of my porfolio in index 2 fidelity index funds: total market, international markets and 50% in individual stocks and 20% cash ... something is coming idk when but I want to be ready.
This aged well update?
Or you could do the Harry Browne permanent portfolio or the golden butterfly portfolio. Check out their performance on portfolio backtester, Google portfolio visualiser, I realise past performance isn't any guarantee of future performance. Either portfolio might work well if your feeling cautious and you wouldn't need to take the risk of holding individual shares
There are many indexes and excellent stocks to invest in for that. QQQ, VTI, XBI, TDV, BAM, BIP, O to name a few.. If you really want something real simple and reliable than NOBL which tracks the Dividend Aristocrats, has 10% or more returns historically and also has a low beta vs the SP 500. I'm the complete opposite, I don't use exotic LEAPS or Options but I am invested medium term in small cap BIO tech stocks to get at least a 50% return every year.
You are the best.
Thanks!
Great video! As you I prefer individual businesses but I also hold targeted index funds when I want to cover a market that I believe is undervalued. E.g. growth markets or Swedish investment companies have developed well. Thanks! /E
Thanks for sharing!
Thank you Mr. Carlin for your continuing education. In the sea of YT finance channels, you make it easier to understand how the complex factors relate to each other and it's helped me make better decisions when pulling the trigger to buy/sell. Please continue and I hope you can make some supplemental income for making this channel.
Thanks for the support!
Sven you talked me out of index funds last year! This is like a crazy old girlfriend coming back to worm her way back into my life
J strap I was just getting started 18 months ago and focused on index funds, investing monthly and putting more in if the price dropped below my average.
After Svens video warning about them I started shuffling money over into actual stocks. Most of my stocks are doing well, (6 of 8 up including fees) but I could’ve saved on the fees with by sticking to my original strategy XD
stevenrose86 yeah that’s basically what I was doing as well. As for fees it seems everyone is offering free trades now, even Vanguard for stock trades. All that has happened in the last year
hehe, I didn't talk you out - you figured what is best for you:-) You need to pick a strategy and stick to it - know what you can expect and then see how it fits you:-)
I personally pick individual stocks that are in my circle of competence but I like the idea of using index funds for sectors that are outside of my expertise I.e. tech stocks. When the next crash happens I think I might invest a large portion into the Nasdaq or some other tech heavy index fund
smart:-)
Another great video Sven, well done. Research like that is so valuable and puts thing in perspective. Personally I will be allocating 40% in globally diversified ETF´s when the level is acceptable. 60% in individual businesses with an adequate risk/reward balance. Signed up to your research platform a few days back and currently digging through the material. Regards from Oman
Thanks and greetings to Oman:-)
First. Thanks for posting!
Thanks for commenting!
Good analysis!
One issue, is that inflation is not considered, so that is one reason for the skew to the positive side.Venezuela stock index for example, have huge yield (when measured in local worthless money of course )
Yes, I know: if you dont invest your money, inflation will eats your money anyways
99% of stock market returns are thanks to inflation and dividends:-)
One of the biggest assumptions of index investing is that you will always have an income to dollar cost average in. The most important time to dollar cost average in is during bad economic times, which is also the time you are most likely to have lower or no income.
YD - Spot on... That's a big part of the reason prices gets to low. Less funds to invest means less demand.
Maybe one way around that is to keep a buffer in cash (10-20% perhaps?) to invest when the index falls below a certain threshold. So at least you get some traction from an economic downturn. But there’s an opportunity cost. Also to keep a comfortable emergency fund to not have to pull out invested money, even if 100% invested as you can still reinvest dividends even in a downturn.
that is an excellent point, so it again boils down to the individual:-) On the other hand, even if you just reinvest the dividends you should be great!
I am thinking about maybe doing a mix of different types of investing, I will definitely put some money into various ETFs, but may also buy (more) individual stocks, and other products like maybe market-linked GICs. It's all about having a good mix IMO (without having investing suck up all of your free time for most people).
whatever is best for you!
Good info. Thanks. A question: is possible to use another index fund who historically hedge sp500 when spend long time in lows?
no, there is no correlation, you never know what can happen next
Cashing out when the market is perceived as high even if you've achieved your goals to me is still timing the market in a sense. I have to admit I don't have a 30 year horizon, and my goal is to make as much money as possible while being able to tolerate some risk.
yes, but the key is also not to be greedy - not risk what you need for what you don't need:-)
In my country banks yield 4 to 6% in CDs. I think for a time will be there for security. Of course, if I want to make more than that I need to look for very good businesses. 30 years on the stock market in indexes are few returns but I think if you do good management of money and look on what's going on on the markets, you can achieve a little more.
Williams Douglas Rodrigues Monte Hello! What is the inflation level in your country?
Fabien 2
Whenever I watch your videos I feel like I'll have to write an exam at the end :D
Hey Sven, thanks so much for the extremely valuable insight on value investing. One thing I've been trying to learn about that I haven't seen anyone give a good video or podcast on is how to evaluate a company's debt situation. I know the lower the long term debt, the better. But how do you evaluate a company's 10K to determine if the long-term debt they do have is good or bad, whether or not it's being managed well, and what the risk of that debt is to investors? Thanks again!
that is a good question and would deserve a good video - in short- it depends on the company, the sector and the sentiment - and that is where it starts to be long.
To bre Sven. Looking forward to your platform!
hvala!
sven what are your thoughts on growth etf's are these too risky or can you apply the same dollar cost average strategy?vug from vanguard or schg from schwab for example,im 38 new to investing and feel i need to catch up and affraid a simple total market or s&p 500 fund might not be good?thanx for videos!!!!!!
I have no idea:-) More growth, more risk, you might be catching up for a long-time:-) Impossible to answer without knowing the future.
the 10, 20, 30 years returns which you showed in the first half of your video, are those returns from a lump sum investment at the beginning, or with a monthly contribution?
just lump sum at the beginning! The monthly contribution and longer term compounding make things look much better.
Sven, it could be interesting to have a video on how to use your investments to retire. You mention « cash out ». However it may be better to stay invested in stocks and live off the dividends. Some diversification cannot hurt, but depend on dividends to live allows not to have to worry about market prices.
hm, well, if you buy something and it is up 50 times in 30 years, then you see:-) Dividends or cash, you don't care much as you are so rich already:-))))
'Stock returns will be closely related to the earnings'... I don't think that's understood by many, and possibly not understood by most.
I prefer individual stocks over ETFs and/or mutual funds, but I still have approximately 50% of my portfolio in low cost ETFs, which I expect to perform in-line with broad market long term. Namely SCHC & SCHF (international developed), SCHE (emerging markets), SCHD & VIG (dividend growth) and SCHG (large cap growth). The other 1/2 of my portfolio is individual stock picks that I believe will provide the alpha to significantly outperform the broader market long term. I'm often asked if I'm confident in my individual picks, why not go all in on those and forget about ETFs? I was all about individual stocks when I was younger, but as my portfolio grew and I reached my 40's, I decided to diversify a bit thru ETFs. More to do with portfolio size tho'... It's worked out well so far.
Going to enjoy this irrationality while it lasts, but I'm going to loudly applaud when it's finally over.
Thanks for the great videos as always Sven!
Scott S I want one day achive something at my 40s. Im 24. Hope my young age doesnt trick me
@@rodriguezmontes8242 - You're ahead of where I was at 24. I still had another couple years before I invested in my first stock at that point. Good luck to you!
I think really few get it because it evolves over a few cycles:-(
Nice video again, thanks Sven!
Only problem what I don't have 30 years for investing:(. My invensting horizon is only 10 years doing DCA (after 10 years I'd like to live partly from my portfolio (4 or 3 or 2 % rule:) or from dividends)), so, as I see from video, investing in index is too risky for me...:(, because of aforesaid short term. Although I would like to invest in index, because I don't have enought patience, knowledge, time and mainly willingness:) to analyse and pick individual stocks.
So, what felow investors would suggest?
Sven, what is Your opinion about 4% rule? Could You do a video about it?
hm, good questions - will work on them:-)
@@Value-Investing
Thanks, Sven. Will be waiting.
Do you believe the same principles here apply to international indices? Would now be a good time to invest in something like VTWAX?
all the same
ACWI, the all country world index... u can follow good safe growth with some etfs also, the russell 200 growth or the ark innovation etf
Thanks for the insightful video Sven!
Would your opinion be the same about investing in emerging market index funds?
I'm considering doing a monthly investment for the long term in the Indian markets using the NIFTY 50 index fund. I'm doing it to also hold Indian rupees for the future.
I don't know, if you are happy with the businesses in the index:-)
@@Value-Investing does it matter as most of the companies included in Index tend to go out of the Index and some new is added.
How to invest during retirement? Is it advisable for retirees to be in stock market eithwr via an index or a portfolio of individual stocks, in some proportion? Do you think that a portfolio allocated amongst stocks (equity) and bonds say in a proportion of 60:40 or 70:30 is a good move?
You don't seem very encouraging for such an investment step if the retiree depends on such a portfolio for his expenses.
There are other indexes than the s&p 500. I prefer a total market fund. Gives you access to China and other emerging markets while reducing US exposure.
yes:-)
caveat: "total market" usually refers to the US market instead of a global index. For example Vanguard's Total Stock Market ETF (VTI) is US only.
@@wcoenen Vanguard Total world stock moest closer.
Hi Sven, thankyou for this.
Are there other index funds based on indices other than the American indices? If so, how do they compare with the American index funds?
(Personally, I prefer the idea of individual businesses, but, as a mate of mine puts it: "WTF is wrong with knowing stuff?" 🙂)
Tons, eafe index, FTSE 100 etc etc
There are many, but then again you have to see which one is for you:-)
@@Value-Investing Sorry, Sven, for what I later realised was was such an open-ended question.
I like investing in individual stocks. I have done better with individual stocks. What do you think about the magic formula stock purchase method? I would love to hear your thoughts on it, Sven
I looked it up, it's pretty interesting. The author of the formula claimed 30% average annual returns
Joel Greenblatt's returns aren't mythical, they're legendary.
I don't like formulas, I prefer common sense:-)
@@Value-Investing I appreciate your response, and I enjoy the analysis you share. I like to use the magic formula as a screening tool. Common sense helps to reduce the list from there. I purchased ADM after you shared information on it, and did some digging myself of course. I have noticed you invest outside of the USA a lot. I am more tempted to use indexing to invest outside the USA and EU. Is most of your portfolio research related inside or outside of the USA?
Hello Sven ☺
What do you think about this strategy to prevent crashes?
If we have invested in the index fund and we set a limit when to sell for example when is -11% we sell and then we are waiting for a bigger down -20% or higher and then we will buy and we will have a higher ROI when the market will go up.
to be honest, it is complete bullshit - what if it falls 11% you sell and then it goes up 100% - timing the market might get you lucky here or there, but you might miss the best of what the stock market has to give - good luck
@@Value-Investing Many thanks ☺
Some 72% of wealth accumulated between the third quarter of 2009 and the third quarter of 2019 went to the richest 10% of households, according to an analysis by Oxford Economics
right mindset, right attitude to take advantage of what is going on.
One of the problems with the S&P is that the type of companies have changed over time. A company like GOOGL is not the same thing as a company like GE. So what we have now is an index that is made up with a lot of growth tech stocks versus in history it was made up of a bunch of industrial companies. Is today's S&P500 really comparable to the S&P500 from 1960?
Good point, the question is what will the S&P 500 look like in 20 years:-)
I have a question . I want to have a portfolio (Roth IRA), let’s say 80% S&P index fund, 10% total stock market index , 10% small cap etf. Do I keep investing in those same funds yearly or do one initial investment and keep forever then find different funds of the same category each year??
as you wish - really to broad of a question to have an answer.
You would be better off putting $2000 each of VOO, VO and VIOO in there.
What is happening in Tesla?
This is an over-analysis type of question but I think you might enjoy it:
Based on what I've watched from you here is a what I've learned: If we want to create financial security for ourselves and our family we should allocate a certain amount of our income to saving. If we want to create wealth for ourselves and our family we should allocate a certain percentage of our savings towards investing (especially if we already have bought a house). If we have no free time or interest we could take the amount allocated towards investing and invest in ETFs or broad market mutual funds with low fees. If we have lots of free time and lots of interest we could follow the advice in your courses and channel and analyze businesses and invest in the ones we determine will have a good return on our investment (based on this video companies that we expect to return much more than ~6% because that's what we could expect to get with no effort ETF investing).
What do we do if we are in between? You alluded in the video that you could do both but how should I determine the allocation? I was thinking, for example, if this is my 1st year of investing my knowledge is very low so my best bet is to invest in ETFs and then use a certain amount of time to research how to evaluate companies. The next year, I switch to 10% my own picks, 90% ETFs. This would continue until I reach a limit on the free time I have. How much time do you need to do a good enough job evaluating companies?
Although I had a bunch of questions here in summary: What is the break even point of time researching companies vs no effort ETF returns?
you should start by knowing 10 companies very well and add 2 to your basket every year - over 50 years, with a few hours a month, you know enough and have a great portfolio. Read: Peter Lynch - One up on wall street
Index funds look better to incase of emerging markets like India. what your view sevens whether to go for it In India or not
depends on what is in the fund there - I didn't analyze it so I don't know
@@Value-Investing thanks for your reply
So Sven you suggest to by s and p 500 now
that depends on you - I think that was the message of the video:-)
In my opinion it is never a question of black and white (to buy or not to buy). Investing is a long term process and you are always in the grey area!
You always try to buy not too high and you must avoid to sell in the crashes.
.
I would put 60% now and wait or look for really good businesses to invest the rest 40%
Sven problem od that you are telling about 150 years. Nobody lives so long. You can calculate only for 40years max.
30 years is max what I talk about:-) ahaha
Is Tesla the new amazon?
who knows :-) We will see
I prefer BRK over SP500
Hey Sven! I have a question on a strategy I'm thinking about. My bank offers me 1.25% interest on 3x leverage investing. Do you think its worth just leveraging a few ETFs mostly the S&P 500 for long term gains? I would keep around 30-40% cash to be able to fill any margin calls I get. Thanks!
I have no idea:-)
Earning yields have been low since the 1990s. That's 30 years of low yields. Peter Lynch has always tried to avoid timing the market quoting Time in the market > Timing the market. I understand your viewpoint but surely you should still be investing some amount in today's climate? Otherwise, I will be waiting for who knows how long?
it is about owning businesses, not the market!
Invest with Sven Carlin, Ph.D. In case of Value Investing, I agree. But in case of Index Fund investing it arguably is about owning the market.
Why always focus on 1 country? There is also data from MSCI World/ACWI which is a much better index.
because I have the data there:-)
The TSLA stock is launching like a Space X rocket!
Yes, if we start at a high over-valuation, the future return could be quite low. If we buy now and a crash occurs, we would have to wait for the next over-valuation.
.
But if we have to wait with cash (with no interest) for 6 years and the stocks gain in average 9% p.a., then we nearly have no advantage in buying an index fund in the stock-market crash.
.
a crash is wonderful unless you lose your job and cant invest when you need to or you still have credit cards to pay off :s
wolf - Exactly... Sven is prepared for a crash. Most however think they want a crash thinking it's only the stock market that's impacted. That's far from the case unfortunately.
i need to do more to prepare as far as alternate income streams but am hording all the cash i can, learning all i can from great gurus and analysts like sven and taking small positions where in see value for now.
If you have credit cards to pay off, you should probably not invest (20+% interest rates). Probably have an emergency fund is wise before investing as well, so ideally you don’t have to use credit the time you look for another job.
credit cards? you mean you have not the money to live 12 months until you find another job? Well, what are you watching YT for, start working more and saving!!!!
stay poor
Hey Sven, what do you think about Phil Town and Rule 1 Investing? I just noticed that many things you are saying the same
don't know much about him:-(
"50% of the time, investing in index funds will deliver no returns"
Is this really accurate?
Because for 1929 you kinda 🍒 picked someone who only got in at the top and then never invested again. Most people would rather have ETF savings plans though, so they would have made good gains from 1929 til 1954.
The other phases look legit though as they're just lengthy sideways markets.
there were no ETFs back then:-) In any case, people's behaviour is always so strange when it comes to investing - that is the key actually!
Why is this man saying on another video don't risk your retirement money on the S&P 500, you should by stocks??
This evidence supports the 4% safe withdrawal rate rule.
I mean some can analyze companies for hours and work hard to try to get cheap good opportunities. Other buy tesla an multiply by 5 in months their money.... So unfair
it is totally fair - look at the risk versus reward:-)
@@Value-Investing problem is the risk is mitigated by fed
Once you touched to stock picking with a modern value and growth mindset, you cant' come back to ETF.
yes, that is a thing:-)
10% per year is excellent if you have 128billion to invest like Buffet. If you have less than 1million to invest you should go for at least 50% per year
Greed the human natural algorithm, gain as much as you can in short term. I blame evolution for that.
ah, it is just human!
This was hard to understand
You say
> "I looked at 150 years of returns delivered by the S&P 500 index fund"
What are you talking about? The S&P500 has only existed for 62 years. Founded in 1957.
they went back and made a hypothetical one from 1871 :-)