Should I buy an S&P 500 ETF at current levels? There’s no two ways about it, for many investors, buying the S&P 500 index is probably the best thing they could do if they’d like to get exposure to the stock market.
The numbers are compelling. The S&P 500 has outperformed most active managers by some margin over the past decade.
However, while this fact is often touted by ETF proponents, it doesn’t take into consideration that private investors can be a lot more nimble than your average fund manager, apply a degree of trading to their portfolios, boosting returns.
That is, of course, if they have the experience to do so. Those who don’t have a reasonable level of experience in the stock market are probably better suited to sticking to the broader equities indices.
Investors in the S&P 500 index will gain exposure to the world’s largest companies. Household names such as Apple, Microsoft, Nvidia, and Amazon make up a large proportion of the index and, therefore, your investment when you buy an S&P 500 index ETF.
These companies and the S&P 500 have been a safe bet and will likely remain so for the foreseeable future.
There is one technique that savers and investors should be aware of to help smooth out the inevitable bumps in the road when investing in stocks.
That’s dollar cost averaging. Or pound cost averaging, depending on which side of the Atlantic you’re on.
The answer to our question of whether you should buy an S&P 500 ETF at current levels is probably yes. But it will also be yes at the same time next month, and the month after that, and, yes, the month after that.
By drip-feeding your cash into the S&P 500 on a regular basis, you even out your investment and soften any bouts of volatility. They even become an opportunity and can boost your long-term returns.
Who knows if the S&P 500 will be 5% higher or lower next month? With dollar cost averaging, it doesn’t matter; you buy anyway. It builds your investment and smooths out the entry points.