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Hey Scoopers,
In today’s special edition, we examine three investing strategies for building long-term wealth in the equity market.
Alright, degens, it's time for some big brain moves!
Investing in the S&P 500
The S&P 500 index is among the most popular equity indices in the world. Over the last six decades, the flagship index has returned 10% annually after accounting for dividend reinvestments.
The S&P 500 provides exposure to some of the world’s largest companies, including Nvidia, Microsoft, Apple, Alphabet, Meta Platforms, Amazon, and Tesla.
The index is weighted based on market cap, suggesting that Big Tech companies account for a sizeable portion of the S&P 500 in 2024.
Investing in this index is the ideal way for most individuals to access the stock market, beat inflation, and build long-term wealth.
Investing in individual stocks is extremely tricky, given that you need to consider multiple factors, including a company’s management team, financials, competitive moat, and growth prospects.
Alternatively, investing in the S&P 500 offers diversification and lowers overall risk. Moreover, 80% of Wall Street fund managers have failed to outperform the S&P 500 over time.
Given these factors, here are three strategies you can use to invest in the S&P 500 index. Let’s dive deeper.
How Should You Invest in the S&P 500?
I analyzed monthly S&P 500 data for the last twenty years and ran the numbers for three investment strategies. In each strategy, you would have invested a similar amount over twenty years, which is $240,000k.
Here's what happened when we put these investing strategies in a cage match 🥊
1. The December YOLO Strategy 🎅
An annual investment of $12,000 in the S&P 500 index every December for 20 years would have increased your portfolio value to $589,847.23 today. So, a $240,000 investment would have helped you earn an additional $350k over 20 years.
This strategy indicates an Extended Internal Rate of Return (XIRR) of 9.47%. The XIRR formula calculates annualized return on investments with multiple cash flows at different times.
2. The DCA Chad Move 📈
Over the last two decades, investing $1,000 monthly in the S&P 500 would have increased your portfolio to $654,932.15, indicating an XIRR of 9.82%. A $240,000 investment would have helped you earn an additional $415k over 20 years.
3. The "Buy The Dip" Degen Play 📉
According to Warren Buffett, the best way to build long-term wealth is by investing in stocks when market sentiment is bearish.
In the last 20 years, the S&P 500 has fallen by 5% for the month 24 times. So, if you waited for 5% market dumps like a hungry shark and threw $10k at each dip, your portfolio would have grown to $712,456, indicating an XIRR of 11.24%.
A $240,000 investment would have helped you earn an additional $472k over 20 years.
DISCLAIMER TIME (because our lawyers said so):
All these numbers assume you're reinvesting those juicy dividends
We ignored those pesky fees and taxes (wouldn't that be nice?)
Used monthly closing prices (no fancy day trading here)
TLDR: Buying the dip > Monthly investing > Annual YOLO
But hey, any of these strategies beat keeping your cash under the mattress! 💯
Not financial advice, but you already knew that! 😉
BATTLE ROYALE: INVESTING EDITION 🏆
Let's break down these strategies and analyze them further!
THE ANNUAL YOLO ($12K in December) 🎅
Pros:
Perfect for the "set it and forget it" crowd
Your tax guy will love you (once-a-year paperwork)
Saves on trading fees (20 trades? Ez pz!)
Cons:
More sensitive to timing than your ex
FOMO on those juicy dips
Returns are looking kinda “unlit” compared to the competition
THE MONTHLY DCA CHAD ($1K/month) 📊 Final Score:
Why It Slaps:
Consistent exposure, unlike your gym routine
Less timing anxiety than your first date
Smaller chunks = less sweating
Crushed the annual strategy by $65K (flex much?)
The L's:
240 transactions (I hope you like paperwork)
Gotta keep that cash flow steady
Transaction fees might eat your lunch
Still missing those mega-dip opportunities
THE DIP HUNTER ($10K per 5% drop)
Pros:
Absolutely demolished other strategies (+$122K vs annual)
XIRR flexing with +1.77% returns over annual investing
Buying fear like it's Black Friday
Fewer transaction headaches than monthly investing
Cons:
Need cash ready like a UFC fighter
Diamond hands are required during dumps
Market timing is more unpredictable than crypto
Might be waiting longer than Star Wars fans between episodes
Cash management is harder than keeping your New Year's resolutions
THE FINAL SHOWDOWN 🥊
Returns Game:
Dip Hunter: The GOAT (11.24%)
Monthly DCA: The reliable sidekick (9.82%)
Annual YOLO: The bronze medalist (9.47%)
Difficulty Level:
Annual: Easy mode 🟢
Monthly: Medium mode 🟡
Dip Hunting: Hardcore mode 🔴
Cash Flow Check:
Annual: Flexible like a yoga master
Monthly: Structured like a German train schedule
Dip Hunter: Demanding like your personal trainer
Emotional Damage:
Annual: Zen master 🧘♂️
Monthly: Sometimes spicy 🌶️
Dip Hunter: Full rollercoaster 🎢
TLDR: While the Dip Hunter strategy is the absolute chad of returns, Monthly DCA is probably your best bet unless you're built differently. Why?
Clock-like consistency
Solid returns without the drama
It won't give you anxiety attacks
Your wallet won't hate you
Natural diversification (aka not putting all eggs in one basket)
Remember, fam, the best strategy is the one you'll stick to! 💯
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