Only a year ago, bear market lows were fresh in our memories. All three major indexes had reached bear territory back in 2022, and our biggest question was: When will the next bull market arrive?
Market gains last year, led by growth stocks, lifted our hopes. And the S&P 500 (^GSPC) sealed the deal this month when it reached a new record high, confirming the market has indeed been in a bull phase as it’s climbed over the past 15 months. The financial community always declares bull markets after they’ve actually started.
But don’t worry — even though this market has been roaring higher for a while, there’s still plenty of time left to benefit. History shows us the average bull market lasts considerably longer than the average bear market — nearly nine years versus 1.4 years, respectively, according to data compiled by Raymond James & Associates.
So, how can you benefit from this exciting investment period? By putting your money to work in the S&P 500. Over time, the index has generated an annual average return of 10%, resulting in significant gains for investors who have bought shares in an index fund, such as the SPDR S&P 500 ETF Trust (SPY). In fact, this spectacular fund could turn your $300 a month into nearly $1 million. Let’s find out more.
Offering you immediate diversification
First, a little bit about this top index fund. To mirror the S&P 500’s performance, the SPDR includes all the industries and shares you’ll find in the benchmark — and all are present at the same weight. Investment in the fund offers immediate diversification across industries and exposure to today’s biggest market movers.
The fund’s (and index’s) top seven holdings are technology shares, including names such as Microsoft, Apple, and Nvidia. And information technology currently comprises about 30% of the entire fund. Other heavily weighted industries — among the 11 in the fund — include financials and healthcare.
Now, let’s look at how you could almost become a millionaire by simply investing in this fund. It’s all about investing regularly and over the long term. Here’s an example. If you invest $300 in the fund every month for 35 years, and we assume an average annual 10% rate of return, your investment could grow to $975,688. You will make $126,000 in contributions over time and generate $849,688 in returns.
By investing regularly, you’ll benefit from the effect of compounding, the idea of gains creating further gains. And over the long term, as you can see by these figures, compounding can truly work its magic. Now is a great time to get started with this sort of investment because we’re in a bull market, so you’re likely to start growing your money right away.
The S&P 500’s triple-digit gains
The S&P 500 has climbed in the triple digits over the past four bull markets, dating back to the early 1970s. So, if history repeats itself, we could be looking at significantly more growth to come. The index has advanced about 36% so far in this new bull market.
Does this mean you should give up on stock picking? Not at all. In fact, you could pair this index investing strategy with your stock-picking one.
For example, you could choose a few S&P 500 stocks that aren’t heavily weighted in the index but offer promising growth prospects or interesting dividend payments and buy those particular players separately. Or you could reinforce your bet on one of the biggest S&P 500 companies to multiply your chances for gains. This individual stock picking can be done whenever you have cash available.
Finally, what if you don’t have $300 per month to spare? No problem. Even a much smaller monthly amount invested in a top index fund could deliver outstanding results. The key is to invest monthly and benefit from the power of compounding over time.
All of this could help you maximize your bull market gains — and your portfolio’s performance over the long term.
— Adria Cimino
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Source: The Motley Fool