Invest in the S&P 500 and forget it: Every so often, this advice becomes more and more popular from the media and well-intended TV personalities with the intent to simplify investment management. I’m a huge fan of simplifying; however, this advice can also be misleading, dangerous, and rob you of proven and disciplined long-term opportunities.

Why is this so popular now? It just so happens that over the past 10 years, the S&P 500, which we show as Asset Class Mix 2 in the charts below, has outperformed all other equity asset classes over that period.

Yet, how quickly we forget the Headlines from 2010 like “The Death of Equities” and “The Lost Decade” referencing the performance of the S&P 500 (Asset Class Mix 2) from 2000 through 2009. As the charts below show, the S&P 500 suffered a -.01% annualized return, and a -9% cumulative return during that 10-year period.

Would you have had the discipline to stay invested with the same strategy over a ten-year period after suffering a -9% cumulative return? Those returns would make even the most disciplined, long-term investors second guess their approach, especially when other asset classes earned as much as 414%, as was the case for Emerging Markets over the same 10-year period.

As you can also see from the previous charts, there is truly a randomness of returns and it is impossible to guess which asset class is going to “outperform” from one year to the next, or even one decade to the next.

So, what’s a disciplined long-term investor to do with all of this volatility and uncertainty?

First and foremost, design a well and specifically diversified portfolio that best suits your risk tolerance and long-term goals. Then, appropriately manage your contributions and distributions into and out of your portfolio to take advantage of the various asset classes’ volatility over time while maintaining your correct long-term model targets.

For those in their accumulation stage: direct your monthly auto contributions into the asset classes that are not doing well at that time.

For instance, from 2000 – 2009, your contributions would have purchased more of the S&P 500 (Asset Class Mix 2), at those low or “cheaper” prices within your preset target parameters, with the expectations of when that asset class reverts to its long-term mean, you would have accumulated more shares to enjoy in the eventual resurgence of that asset class. In the case of the S&P 500 (Asset Class Mix 2), that has occurred quite significantly from 2010 – 2019, and possibly beyond.

For the time frame of 2010 – 2019, you would have followed the same approach and directed your contributions into to the asset classes “not in favor in those periods.”

Not only does this strategy allow you to buy more shares at lower prices, it also maintains the preset target allocation that best meets your risks and long-term goals, or periodically “rebalance” your portfolio.

The future income potential of your portfolio is based not only on its value but on the number of shares within your portfolio. Specifically, those shares that generate income through dividends and interest. Directing your contributions into the appropriate asset classes will help you accumulate/own even more shares that will ultimately provide your future income needs.

Make sure all dividends, interest, and capital gains are also automatically reinvested into the portfolio holdings.

For those in the distribution stage: any income “gap” not met from your dividends and interest can be achieved by selling small amounts of the asset classes that are currently performing the best.

For instance, from 2000 – 2009, your additional household cash flow needs would have been generated from sales of the REITs and Emerging Markets asset class holdings, since they were “outperforming” during those periods.

For the period of 2010 – 2019, targeted sales from your S&P 500 (Asset Class Mix 2) asset class holdings would have helped provide that additional cash.

Take a step back, and you realize this systematic and disciplined “targeted dollar cost averaging” strategy promotes the old investment adage, “Buy low, Sell high.”

Taking a longer perspective, the S&P 500 (Asset Class Mix 2) has enjoyed an annualized 5.65% return since 2000, while a more diversified portfolio (Asset Class Mix 1)1 has enjoyed annualized returns of 6.24% while taking substantially lower volatility risks.2


A key aspect of this disciplined strategy is working with a fee based, fiduciary and independent CFP® who will guide you through proper planning and design a diversified portfolio to help you meet your specific risks and long-term goals, while taking advantage of short term volatility to appropriately allocate your cash inflows and outflows.

Directing your contributions to and distributions from the appropriate asset classes is a key long-term strategy that will help you increase your probability of success. Investing in just one asset class like the S&P 500 denies you of this important strategy and exposes you to short-term and long-term rollover coaster rides that few investors can stomach.

Asset Mix 1: .5% Cash, 9.50% US Short Investment Grade, Global 15% Short, 12% US Stocks, 16% US Large Value, 11% US Small Neutral, 15% Int’l Large Value, 8% Int’l Small Neutral, 7 Emerging Markets, and 6% REITS.
2 Standard deviation of 14.05% for Asset Class Mix 1 versus 17.52% for S&P 500/Asset Class Mix 2.