The S&P 500 is one of the world’s most closely followed indices.
From online chatter to professional dealing floors, investors often debate on how best to match or at least share its success. In recent years, it’s eye-catching gains have often been powered by a narrow group of heavy hitters dubbed the magnificent seven.
The temptation here is to chase these leaders or even try to find the next breakout star. But with a long-term view to investing on your side, the smarter focus shouldn’t be on next week’s winners, but on what ten years can do for you.
This article isn’t advice. If you're not sure if a course of action is right for you, ask for financial advice. Remember, all investments can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.
Markets shrug off setbacks
Over the past decade, markets have navigated a relentless series of global shocks including COVID-19, trade wars, inflation spikes and ongoing geopolitical uncertainty.
Despite these headwinds, with time on their side, the long-term equity investors have been rewarded.
It’s worth noting that alongside the S&P 500, global stock markets have also delivered impressive, compounded returns over the last ten years, ahead of cash, bonds and inflation.
Headlines and short-term noise can change, but patience and staying invested is often rewarded.
Percentage growth
1 year | 3 years | 5 years | 10 years | |
|---|---|---|---|---|
S&P500 | 12.28% | 45.15% | 92.74% | 321.9% |
Global Equities | 12.64% | 40.28% | 74.66% | 226.22% |
Global Bonds | 3.32% | 9.87% | -1.17% | 16.33% |
Cash | 2.72% | 7.63% | 8.15% | 10.21% |
UK Inflation | 3.79% | 13.15% | 28.29% | 38.99% |
The power behind the growth
The S&P 500 is a group of approximately 500 of the largest businesses in the United States with big names from household consumer brands to cutting edge technology firms.
Over the long-term, these companies have consistently increased earnings and pioneered new technology and products. They built on the basics that determine successful companies and more. This drives share prices higher, not the short-term noise of daily trading.
For an investor, compounding then does the heavy lifting.
Gains and re-invested dividends can build on themselves turning annual returns into powerful long-term wealth creation. Crucially though, compounding only works if investors remain invested as jumping in and out to time market events interrupts the process and risks missing the strongest days.
Defining your fundamentals
When building a portfolio, the golden rule is always to diversify.
Don't have too much in any one industry or sector, let alone a single company stock.
Alongside doing your own research, there’s three things you can ask yourself when considering investing in a company:
What are their growth prospects looking like?
Are they dependent on a particular event going their way to succeed or do they have many strings to their bow?
What are their finances looking like?
Too much debt and a stumble could bring them down.
By carefully picking well financed businesses, with strong profitability and great growth opportunities, you can give yourself the best chance of making solid long-term returns from the markets.
Let time in the market work for you
The dazzling rise of specific shares can tempt investors into concentrating portfolios.
For example, over the last decade, NVIDIA has surged from a niche chipmaker to an AI powerhouse. Yet few predicted the rise before it came to light.
Prior to NVIDIA’s era, the index’s top firms by size were different beasts entirely, serving as proof that leadership of the index rotates.
Over the last few decades, these are some of the names that would have stood out at the top of the index.
1990 – Exxon Mobil, IBM, General Electric
2000 – Exxon Mobil, General Electric, Cisco Systems
2010 – Exxon Mobil, Apple, Microsoft
2020 – Apple, Microsoft, Amazon
The largest winners aside, what happened with the rest of the index?
While it’s true that most of the S&P constituents have gained over the period, not every company will succeed or remain a part of group.
Competitive pressures, technological change, demographics and management decisions can all erode value, or create a level of growth that is best discovered with time.
Diversifying across sectors, geographies and asset classes spreads risk and captures the breadth of opportunities the markets can present. It means you don’t need to predict the next big thing to benefit from long-term growth. But you do have to be invested.
Let time in the market work harder than attempts at timing the market.
Spread your assets, reinvest income if you can and stay disciplined through inevitable bouts of volatility. Growth is never a smooth ride but tends to be quite bumpy and often frustrating.
S&P 500 growth since 2015
The S&P 500’s story over the past decade illustrates the enduring power of equity markets to compound wealth despite recessions, pandemics and other shocks.
A well-diversified, disciplined and long-term approach can see investors harness that same potential for the decade ahead and turn today’s patience into tomorrow’s prosperity.
An easy way to get started investing
The HL Ready-Made Investments are all-in-one investment portfolios which were designed to make investing easy and accessible.
Simply choose the investment that best aligns with your goals and leave the rest to our expert managers to handle the investment decisions.
You only need to pick one of these funds to have a diversified investment portfolio. Remember, all investments can rise and fall in value, so you could get back less than you invest.