Is the S and P 500 safe?

Answer 1

It depends on what you call "safe."

The S&P 500 is a number that represents the total value of common stock in 500 of the largest US-based companies in the world. It changes every day with stock marketfluctuations. Since 500 different companies contribute to the number, it is called a "Stock Market index", just like the Dow Jones index or the Nasdaq index.

Since it is based on the value of common stock of very large US companies, it is a prime indicator of how the US stock market as a whole is doing. In fact, if you added up the total value of the stock in these 500 companies, it would represent about 80% of the total value of the US stock market as a whole. The other 4500-5000 companies on the US stock market are the other 20%. These 4500 other companies could be called "medium" or "small" US companies, while the S&P 500 is "large" companies.

Historically, from about 1927 (before the Great Depression) to 2005, the average annual return was 12.3%, but with severe bumps along the way - the S&P has declined as much as 30% in some years, and then increased as much as 25% in others. About 70% of the years were an "up" year, with the rest a "down" year.

Getting to whether the S&P 500 index is a safe investment (such as buying an S&P 500 index fund like Vanguard or Fidelity). If you are willing to invest for a long period of time (at least 10 years and preferably 20 or 30), then you'll probably do OK, since you have a long time to smooth out the bumps and your average return will be about 8-10%. However, if you will need this money in less than 10 years, I would recommend you put it in a short term bond fund or bank account - the stock market is too risky for that money, and you run the risk of having less than what you put in.

Also, be aware of how much the investment company will charge you to invest in its version of the S&P 500. Both Vanguard and Fidelity offer very good costs, less than 0.2% of assets. There are many companies that charge you 0.6% of assets or more for the exact same product. Don't pay more than you have to for simple index investing.