The SP500 just recently reached on its all time high – here’s why this happened and whether or not it’s too late to invest in the stock market – Enjoy! Add me on Instagram: GPStephan
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For an index like this, the index is weighted by a companies TOTAL market value….so, the more valuable the company is, the more influence that company has on the ENTIRE SP500. Something like this is REALLY, REALLY important to understand – because out of the top 500 publicly traded companies…the 5 LARGEST ones make up more than 20% of it’s ENTIRE VALUE…those companies, in order, are Apple, Microsoft, Amazon, Facebook, and Google…Then, the other 495 companies make up the remaining 75% of the value.
When you look at the breakdown of the SP500 over the last 12 months…you’ll notice that MORE THAN HALF of these companies are DOWN year over year…or, 298 out of 500 to be exact. So, when you see that almost 300 companies have LOST value…but, the SP500 still continues rising higher…it makes you realize that, all of a sudden, those smaller companies in the index don’t matter as much because they don’t hold as much value, relative to the larger stocks in the index…and THOSE are the stocks that are doing really, REALLY well.
Well…as far as what this means, and what you can do with all this information…the answer is…you just keep buying. The best strategy for most of you watching is to invest in an index fund, like the SP500….that way, you’re buying into 500 different businesses and you’re MORE than diversified across dozens of different industries, even IF 20% of that is still led by 5 companies…and THEN, almost don’t pay attention to where it’s trading, as long as you make a schedule and invest consistently long term. That’s it.
It’s more important to realize that stocks will almost ALWAYS, CONSISTENTLY, hit new all time highs over and over again as these companies continue to grow. EVEN if you invested RIGHT before the Great Recession in 2007 at SP500 1557…sure, in hindsight, you lost money short term…but that’s assuming you only invested ONCE and never again. The reality is that, most likely, you would continue to buy in every month…thereby buying in CHEAPER AND CHEAPER every time you buy more. You would be buying the market ALL THE WAY down to the very bottom, and riding it all the way back up as the market recovers.
Plus, instead of being FEARFUL about drops in the future…you should look forward to them, in a way. When there’s such an intense correction, see it as though you’re getting a discount on EVERYTHING. From my experience…the best days to buy more are ALWAYS those days you feel like throwing in the towel because prices keep dropping. OR…every time you think “oh, I’ll wait because it’ll drop even more” – that’s usually a good sign you should buy now.
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