Why the S&P 500 Can Be the Only Investment You Need

ETFs are a great way for you to gain exposure to the broader market or sectors at a controlled risk because of its diversification.

There are so many ETFs for us to choose from, but why just the S&P?

What is the S&P 500 about, really?

The S&P 500 is an index that tracks the performance of 500 large, performing companies.

Of course, most of you already know this.

The key point about the S&P 500 is this: The 500 companies are continually reviewed and replaced should their performance be deemed not on par with the rest of the stocks.

So this means we are constantly getting the best companies in our portfolio, while sieving out the bad ones.

All this is also done at a low expense ratio (as with most S&P 500 ETFs and index funds). That means less of your money is used to pay the fund managers.

Why not the "fancy" ETFs?

ARKK used to be the a hit among investing fanatics. So what happened to it?

From its inception date, ARKK (turquoise line) is back to where the S&P 500 (dark blue line) would have grown to if you would have invested in the S&P 500 instead.

Another popular clean energy ETF, ICLN (orange line), is also added for comparison.

In the end, their performances are not much different from the S&P 500.

ARKK is one of the "fancier" ETFs that focuses on themes and sectors instead of the broad market.

These ETFs are designed to narrow down and try to pick out the best companies within that theme.

So now, this is the big question:

How is this any different from picking a stock?

Instead of picking a stock, we are trying to narrow out the sectors or themes that we think will perform well over time. It's the exact same mindset.

This defeats the fundamental purpose of an ETF, that is to reduce effort and practice more passivity in investing.

Why is passive investing superior?

Passive investing takes away two big resources we use when we invest:

Time and energy.

By avoiding picking out the best sector or theme, you get to spend more time doing your favourite hobby, or spending more time with your family instead of your computer.

The most important part; it takes away a huge chunk of emotion in investing, which translates into less energy spent worrying about your holdings.

Since sector and thematic ETFs have a narrower diversification, it is subjected to larger volatility, and this means you will be more attentive to its movements.

Imagine investing thousands of dollars in a thematic ETF, a battery technology ETF for example.

One day a brand new technology introducing a safe way to power cars using nuclear energy surfaces, and battery technology is obsolete in transportation.

How will you feel when you see this on the news considering you have so much money invested in that ETF? I wouldn't be able to concentrate on my work the entire day!

You will also be subjected to being a "weak hand" where you liquidate your shares early upon seeing bad news, cutting short investment gains or worse still, result in a loss.

So by being passive with your investing and steering away from a stock-picking mindset, we can save time and energy (wasted on fearing).

Not only that, many other ETFs cannot outbeat the S&P in the long term. Only a small handful do, which requires time and energy to research and sieve out.

Why bother wasting energy to find a needle in a haystack when you can just buy the haystack?

Summing up,

The S&P 500 is indeed the most boring ETF out there.

There is nothing much to research about, neither is there many short term rips to earn you huge bucks.

However, it gives you two things any other stock or ETF cannot in interest repayments:

Your time, and your energy.

Furthermore, we can be sure that the S&P 500 is bound to perform over time. That is because it continually sieves out the bad companies and replaces them with good ones.

This way, we can continue holding the S&P 500 with confidence through its ups and downs.