Should You Chase The S&P 500?

The stock market can be a complicated place,  filled with unfamiliar terms and investments. One you’ll come across often is the S&P 500. To explain briefly, the Standard & Poor’s company, now known as S&P Dow Jones (majority owned by McGraw Hill Financial), created its first stock index in 1923.  The S&P 500 stock index in its present form was created in 1957 to track the performance of 500 large companies that have common stock listed on the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). The 500 stocks comprising the index and their index weightings are determined by S&P Dow Jones. The S&P 500 is used as a measure of the general level of stock prices and includes both value and growth stocks.

The S&P 500 had a hard time during the great recession. However, on May 3, 2013, it closed above 1,600 for the first time in 13 years. Since then, it set a record intraday high value of 2,134.72 on May 20, 2015 and a record closing value the next day of 2,130.82. Of course, markets are uncertain, advisers can have different strategies and advice and past performance does not guarantee future results. That said, is the S&P 500 something you should be focused on?

Mark Matson answered that question when he appeared on CNBC recently. He explained that chasing the S&P 500 may not be the best idea. Investors are chasing it because it was one of the best performing asset categories. However, Matson Money wants to remind investors global diversification is important, because only 49% of the world’s capitalization is in the United States, so there’s more opportunity globally than domestically.

Everyone seems to be running away from emerging markets around the world because they’ve been down. However, buying things when they are down creates opportunities for your portfolio. Being a long-term investor often involves  forcing yourself to do  things that others are not willing to do. Waiting for positive market news could damage your portfolio. Rebalancing your portfolio and investing when the market is down creates the potential for gains without trying to rely on market timing and stock picking when no one really knows when the market will move.