Why isn’t it a good idea to just put all my investments into a single S&P500 ETF (CSPX, VUSD etc)?

It is a good idea if you don't know about investing or want to invest the lazy way. It diversifies your risk into many different companies. Companies that are not performing will be replaced by better performing ones. So there is no need worry about index ETF going south.

However, investing in ETFs also mean that you are unable to fully capture those individual companies that are outperforming the rest, because those outstanding performance will be average down with other average or poor performing companies within the ETF itself.

You have a good point, the only thing I would like to add is that do you have all the money you are ever going to invest ready? that is if you have a lumpsum now.

To solve this people have came up with another fundamental principle of investing that is Dollar Cost Averaging. But then again you could be investing at a peak now and the emotional/psychological effect of a -50% from a high price may cause the future you to sell out at a loss before your DCA 20 year strategy plays out.

They are all good ideas, but can one follow through?

I never understood the benchmark system. You design a portfolio where returns are measured against an index which is decades old. Yet when data shows that majority of fund managers fail to beat the benchmark over the long term, complication is born to increase the elusive potential alpha.

The only conceivable way I can think off that would win a benchmark consistently is to borrow at 0% cost, leverage your capital and invest into a benchmark.

Overexposure to sectors are not a new thing. If you rewind the index decades ago, the index has consistently comprised of overexposure to sectors which are upcoming and growing. In the 80-90s, it was the personal computer. In the early 40s, it was railroads.

The main reason the S&P500 works has little to do with the time horizon, but rather, the index is restructured on a yearly basis. They throw and kill off dying industries by asking a question: are you relevant to the future? They measure this based on the market capitalization which correlates to fundamentals in revenue. They increase exposure to winners. Why? Winners tend to win consistently. Losers tend to become laggards and become irrelevant.

Keep the flowers, destroy the weeds. That is the S&P500 fundamentally.

Elija is right, textbook wisdom suggests to diversify more global and to different asset classes.

That said, for the high risk but super-longterm investor it could even happen that a single big and cheap SP500 ETF

is the only investing product needed.