If I’d invested £10,000 in the S&P 500 five years ago, here’s what I’d have now

This writer takes a look at the impressive gains that investors have enjoyed thanks to the S&P 500’s remarkable five-year showing.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The S&P 500 has been on fire lately. From a low of 3,583 just two years ago, the US blue-chip index has surged to 5,841 (as I write). That’s a mind-boggling gain of 63% in just 24 months!

I’d be over the moon to get that from a single stock, never mind a large-cap index.

What’s going on?

A number of factors have come together to produce this stellar performance, including the avoidance of a US recession and the anticipation of falling interest rates.

However, the fuel on the fire has been the rise of generative artificial intelligence (AI) following the launch of ChatGPT in November 2022. This triggered a tidal wave of capital expenditure from the giant cloud platforms, as they feared being left behind in potentially the biggest tech revolution since the internet.

Chipmaker Nvidia has been the big winner, with its share price rocketing around 1,000% in two years. As one analyst put it last year: “There’s a war going on out there in AI, and Nvidia today is the only arms dealer.”

In September, it was reported that Nvidia alone had accounted for approximately 25% of the S&P 500’s year-to-date gains!

The hypothetical gains

So, what if I’d stuck 10 grand into the S&P 500 index five years ago? Well, assuming it was the popular Vanguard S&P 500 ETF (LSE: VUSA), then my return would have been around 108%. That’s with dividends.

So, I’d have £20,800 (not including fees), which would be an incredible return. However, it’s worth remembering this is well above the historical average of around 10.7% per year.

A handful of giants

Given the speed of this rise, I think there are things to consider. Many S&P 500 stocks are pricey and could be due for a sharp pullback, particularly if the forthcoming US election ends in a contested outcome.

Plus, there’s a high level of concentration at the top of the index. Here are the Vanguard ETF’s 10 largest holdings, as of 30 September.

Percentage of fund
Apple7.18%
Microsoft 6.48%
Nvidia6.06%
Amazon3.53%
Meta Platforms 2.54%
Alphabet (Class A)1.97%
Berkshire Hathaway 1.71%
Alphabet (Class C)1.63%
Broadcom 1.63%
Tesla 1.47%

The top 10 comprise around 34% of the total. This very high concentration is due to the largest companies dominating the index with their mammoth market caps.

Where next?

Earlier this month, strategists at Goldman Sachs raised their target on the index to 6,000 by December (2.7% higher). I note this was their fourth increased adjustment since last year, so price forecasts are always worth taking with a healthy bucket of salt, in my opinion.

However, it does indicate that most of Wall Street remains upbeat. Perhaps that’s not surprising, given that the average S&P 500 bull market has tended to run for around five years, and we’ve only just entered the third year of the current one.

Of course, history’s no reliable indicator of what’s to come.

My preferred alternatives

I don’t have an S&P 500 ETF in my portfolio. If I wanted to invest in one though, I’d probably go for an equal-weighted version that gets regularly rebalanced.

This means the fund allocates the same weight to each stock, regardless of company size, providing broader diversification and reducing concentration risk.

Another option could be the iShares MSCI USA Quality Factor ETF. This focuses on a sub-set of high-quality US stocks with strong and stable earnings. Incredibly, it’s even outperformed the S&P 500 in recent years!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »

Investing Articles

I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000

Our writer sees an opportunity to earn a substantial second income by investing in this UK insurance giant. Here’s his…

Read more »

Investing Articles

How cheap is the 72p Vodafone share price?

The Vodafone share price looks very cheap having fallen to a 72p price tag. But is it really the bargain…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Up 43% in a year and the IAG share price could keep on rising!

One of the FTSE 100’s highest-flying stocks still looks cheap on an earnings basis. Is this a brilliant buy for…

Read more »