Reader, Here's One Investment You Should Never Ignore as a Beginner

Hi Reader,

Welcome to The Money Series and if you are new here, thank you for signing up. Personal Finance can feel ambiguous and overwhelming, but I am here to help simplify the journey.

Since the Trump 2.0 administration began last month, global markets have seen some new developments.

Trade tariff tensions and the rise of Deepseek shook investor confidence, but despite initial volatility, the S&P 500* has rebounded, demonstrating its resilience.

I’ve often discussed the benefits of pooled investment funds, particularly S&P 500 index funds or ETFs. Today, I want to highlight the key reasons why I strongly believe this is an excellent starting point for passive investors who don’t have the time or inclination to monitor markets daily.

Ease and Time Efficiency. Let’s be honest - most of us don’t have 30 hours a week to research individual stocks, track market trends, and time our entries and exits. You don’t have 30 hours to research individual stocks and then time the market to know when to buy the stock. It’s tempting to believe you can spot the next Amazon or Nvidia, but doing so consistently is more luck than skill. Investing in an S&P 500 index fund removes the guesswork, allowing you to grow your wealth without constant oversight.

The Diversification Benefit. Would you rather bet big on a few companies or spread your risk across 500 of the largest publicly traded U.S. companies? Investing in an index fund like the S&P 500 spreads your risk across 500 of the largest publicly traded companies in the U.S. across various industries, such as technology, healthcare, financials, and consumer goods. This broad exposure reduces the risk associated with investing in a single company or sector.

Emotion-Free Investing. Automating your investments—say, contributing a fixed amount monthly - ensures your decisions aren’t swayed by market emotions. This strategy, known as dollar-cost averaging, allows you to buy more shares when prices are low and fewer when prices are high, naturally optimizing your cost over time.

Consistent, Proven Returns. For decades, the S&P 500 index has delivered an average annual return of around 10%. In contrast, most retail investors, and even many professional fund managers, fail to achieve this level of performance. In fact, over the past 15 years, more than 80% of actively managed large-cap funds have underperformed the S&P 500.

Low-cost investing. Perhaps the best part? The cost advantage. Index funds tracking the S&P 500 often have ultra-low expense ratios—sometimes as low as 0.03%. Many funds that track the S&P 500 have low expense ratios. Index funds offered by Vanguard or Fidelity have expense ratios as low as 0.03%. If you invest $10,000 in a fund with a 0.03% expense ratio, you’ll pay $3 annually in fees. Compare that to the high costs of frequent trading or actively managed funds, and the savings add up significantly over time.

Finally…

Even legendary investors like Warren Buffet and institutional fund managers like David Swensen advocate for a simple approach: investing in a low-cost index fund. Why do the guesswork of picking individual stocks when you can own a slice of the entire market and enjoy relatively predictable returns?

That said, this doesn’t mean you should avoid individual stocks altogether. If you work in financial markets and have real-time access to high-quality information, stock picking could be a viable strategy. Alternatively, you might consider subscribing to a reputable stock-picking service or allocating a small portion of your portfolio to individual stocks you strongly believe in.

Reflect on This:

• Is investing in a few trending stocks better than investing in a portfolio of stocks?

Till next week, I am rooting for you, money-ly!

Dee

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*The S&P 500 index also known as the Standard & Poor's 500, is a stock market index that measures the stock performance of 500 of the largest companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and is often considered a benchmark for the overall health of the U.S. stock market and economy.

Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.