The Standard & Poor’s, S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U.S. stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation of the U.S. market.
The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large capital corporations listed in the United States. Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor’s. The S&P 500 is a market value weighted index – each stock’s weight is proportionate to its market value. In fact, many consider it to be THE DEFINITION of the market.
These 500 corporations cover about 75 percent of the American equity market by capitalization. They are listed on one of the many American stock exchanges such as NYSE & NASDAQ.
There are many reasons to invest in the US Stock Market. Below are the highlights of some of the more important reasons:
1. Highest Consistent Return in the history of the world
Over the long term, investing in a well-diversified portfolio of S&P 500 stocks will yield a geometric annual average of 9.55% from 1928-2015. However, in the last 50 years, S&P 500 corporations averaged an even better annual return of 9.8%. No other market has ever outperformed such returns. In other words, you do not need to be an investment genius to earn 9.8% return on your stock investment each year for the last 50 years. All you need to do is to purchase a number of S&P 500 stocks and keep it.
This is exactly what Warren Buffett did, most of the time. Of course, he is an investment genius; his company, Berkshire Hathaway bought stocks at the best price and he helped those companies reaching their full potential with a work force of more than 250,000. In return, Berkshire Hathaway averaged an annual growth in book value of 19.7% to its shareholders for the last 50 years, since 1965!
Statistics do not lie. Facts are facts. The S&P500 corporations will continue to outperform all its peers, from any market in the world.
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How the world advances
2. Highest Trading Volume
Daily trading volume in NYSE and NASDAQ averages at about 150 Billion US Dollars every day. As an investor, you want to invest in a heavily traded market so that you have the option to buy and sell your investment at your desired price.
Standing up strongly to any market perils
3. Capital Market of the World
The United States of America is the country that manages most of the world’s capital by any measure. It is the world’s dominant center for venture capital investment, accounting for over 60%. It has the highest number of high-net-worth individuals as well as middle-income groups. These individuals, groups and institutional players are the major buyers in U.S. equity market. Collectively, they have poured huge amounts of funds (billions to trillions of dollars) into Wall Street that form the backbone of the US Stock market and thus insulate small players (individual investors) from getting burnt during times of crisis. Furthermore, no other stock market recovers faster than the United States in post-crisis situations. History has proven again and again since the Great Depression of 1920s.
Money is not wealth but it helps create wealth
4. Federal Reserve Bank
Federal Reserve Bank is the richest and most powerful financial organization of the world today. Its policies dictate the economy of the United States of America and the rest of world to a certain extend. Federal Reserve has always been market friendly. Its Quantitative Easing Programs from 2008 – 2014 helped the U.S. economy and stock market recovery from the 2007/8 Financial Crisis. As a result, the S&P 500 hit several peaks during this period, so did the investors’ confidence.
5. An Independent Market
The United States stock market is considered as one of the most permissive in the world in terms of government intervention and is not affected by domestic political changes such as election of a new President.
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6. Open to all
Anyone above 18 years old in the world (other than nationals of those countries under US Embargo) can actually buy stocks listed on American stocks exchange through a brokerage firm. Our members come from hundreds of countries and have been able to trade on the same market without restrictions. It is a huge plus factor for Financial.org to focus on U.S. Stock market.
7. Well Regulated
There are well over 30 Stock & Electronic Exchanges in the United States. All of these including NYSE & NASDAQ are considered as some of the most transparent and rigidly regulated. Sitting at the apex of this regulatory framework is The United States Securities and Exchange Commission (SEC) which acts as a broad regulatory body comprised of several divisions to ensure a fair and efficient market. Financial & Security laws in the United States are some of the most updated and comprehensive in the world today. Even many of the biggest financial institutions of the world, such as Deutsche Bank, Bank of America, JP Morgan Chase, Goldman Sachs, Citigroup and HSBC have all been fined billions of dollars by SEC within the past few years, for breaking laws. No one messes with the SEC!
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8. America is the center of creation and great ideas
The S&P 500 corporations lead the world, whether you like it or not. Their products set the global trend, save lives of millions, entertain hundreds of millions and globalize the world today. The iPhones, Facebook, Windows, Vaccines, Drugs, Airplanes, Weapons, Microchips, Fiber optics and so many others are all created and marketed by one or more of S&P 500 corporations or their subsidiaries. Where else do you think that could return a 9.8% profit per annum for the greater half of the last century
9. US Dollars Factor
Never keep all your eggs in one basket. Never keep your money in one single currency. Investors from all over the world have always been advised to maintain about 20-30% of their assets in US Dollars because USD is still the No. 1 currency of the world today. It is an insurance against local currency depreciation & devaluation. How do the High-Net-Worth Individuals and Financial institutions maintain their USD portfolio? They buy US Treasury Bills, Bonds and stocks of S&P 500 corporations.
The richest people in the world invest and own shares of S&P 500 corporations. Carl Icahn, Bill Gates, Jeff Bezos and Warren Buffet, just to name a few. Banks, mutual funds and financial institutions all around the world own shares of S&P 500 in America. There is just NO reason that anyone of us shouldn’t do the same. Investing in American largest corporations is THE RIGHT investment strategy for everyone!