Investors can learn a great deal by analyzing the past performance of the S&P 500.
The following chart shows the average S&P 500 returns in each month between January 1928 and April 2024.
Some highlights from the chart above include:
- The stock market generally trends upward more frequently than it declines, with the S&P 500 historically proving to be a profitable investment in 9 out of 12 months, showcasing minimal declines during the remaining months.
- Contrary to the popular belief to “sell in May and go away,” statistics show that the S&P 500 typically experiences growth between June and August, with July being historically the strongest month for the index.
- The September Effect is a notable phenomenon where the S&P 500 often sees a sharp decline in September, followed by a quick rebound in the subsequent months, possibly due to increased optimism surrounding holiday spending. Investors can strategically utilize this pattern by maintaining cash reserves to purchase stocks during September.
- An additional crucial lesson not immediately evident from the chart is that the likelihood of a positive return in the S&P 500 tends to increase as the holding period extends, emphasizing the importance of long-term investment strategies.
In total, there were 1,156 months between January 1928 and April 2024, and the S&P 500 generated a positive return in 685 of those months. In percentage terms the index was a profitable investment monthly about 59% of the time during the past 96.3 years.
However, the probability of positive returns increases as the holding period increases.
Owning an S&P 500 index fund for a rolling 20-year period has consistently proven to be a profitable investment strategy since 1928. This track record indicates that investors who hold onto an S&P 500 index fund for at least two decades have historically seen positive returns on their investment.
In conclusion, the S&P 500 demonstrates a highly favorable risk-reward profile over extended periods, making it a compelling choice for investors seeking to build substantial wealth over time. Given its historical performance, investors may find it challenging to identify another asset class that offers similar potential for long-term growth.
Therefore, an S&P 500 index fund is a solid investment option for most investors, particularly when combined with a diversified portfolio of individual stocks.
Past performance does not guarantee future results. Investing involves risk, including loss of principle.
