As a foodie, I prefer buffet to A` la carte. Having equal access to a variety of culinary delicacies feels like I have lots of choice in the process. It’s also safer because while some foods may taste average, others will be good or even excellent. The overall experience is almost always positive.
Much similar is the S&P500, a platter of America’s 500 richest companies, the pecuniary buffet recommended by Warren Buffet himself to long term investors. The weighted stock market index of America’s best performing blue chips boasts $4.6 trillion in assets and includes many household names: Apple, Microsoft, Amazon, Facebook, Tesla, JPMorgan Chase & Co, Johnson & Johnson, just to name a few. The S&P500's values form ECG graph of the stock market’s heart.
And why I love trading broad based indices, and especially the S&P500, is very much the same as why I like buffets: there is a hell lot of variety, and risks are diversified across companies & sectors. An unpleasant quarter by one company is offset by delicious returns in the other. The long term inflow is almost always positive.
Trading on a broad based index offers investors liquidity and risk diversification but is impacted by the companies’ performance and economic factors, such as monetary policies, interest rates, GDP, and unemployment, as well as currency fluctuations.
The S&P500 has been in a bullish run since the past 9 years, and continues to show signs of growth. Despite overshoots, retrenches and sideways chops, it boasts annualized historical returns of 16% over the last 10 years. Even a huge plummet caused by the COVID 19 panic in early 2020 did not affect its long term performance, as it recovered quickly to produce 18% returns the same year. It’s last three years was impressive: 31% in 2019, 18% in 2020 and 20% in 2021 so far.
And the future looks very bright. While the S&P500 currently trades around the 4500 mark, UBS’s chief investment officer Mark Haefele, sees it on a solid path to 5,000, by then end of 2022. As a technical trader, I couldn’t agree more.
If you are a long-term investor and want to invest in S&P500, you can invest in mutual fund or exchange traded fund that replicates the index via an electronic trading platform or stockbroker.
Alternatively, you can do what I do. Make medium term investment commitments, or trades, to profit from market volatility, through contracts for difference (CFD) trading. This option allows you to withdraw profits as you make them. It also allows you to enhance your returns a great deal by the use of some leverage that is offered by the broker. For example, if the index returns 20% annual, you can leverage your position, albeit safely, by 3 to 4 times to enhance your returns to 60-80%.
If you want to know more about how to trade indices this way to enhance your returns, feel free to contact me directly.