Investing in the S&P 500 has provided exceptional returns for investors over the long term. And even in the last five years, vast sums of wealth have been created, thanks in large part to the ‘Magnificent Seven’ stocks.
In fact, anyone who put £1,000 to work in a passive index tracker five years ago has now more than doubled their money with around £2,085. And for stock pickers who exclusively invested in Nvidia, that initial £1,000 is today worth a staggering £13,407!
Of course, the question now becomes, can the largest US stocks continue delivering such phenomenal gains moving forward? And just how much money could a 50-year-old investor expect to make before retirement comes knocking at 67?
Setting realistic expectations
A 108% total return from the S&P 500 over the last five years is pretty exceptional. After all, that translates into an average annualised return of 15.8% a year compared to the usual 10% that the US stock market generates.
Is this likely to last? Sadly, most likely not.
The last five years have been pretty extraordinary, with the US economy receiving unprecedented stimulus in 2020, a rapid post-pandemic recovery in 2021, and continued business outperformance from tech giants like Nvidia in the years since.
Such events are pretty rare. And while we have seen periods of massive outperformance from the S&P 500 in the past, these have always been followed by an eventual reversion to the longer-term average of 10%.
| Event | Boom Years | 5 Year Average Annualised S&P 500 Return | Slump Years | Market Drawdown |
| Dotcom Bubble | 1995 – 2000 | 22% | 2000 – 2002 | 40% |
| Financial Crisis | 2003 – 2007 | 14% | 2008 – 2009 | 57% |
| Post-Pandemic Boom | 2020 – 2025 | 16% | Time will tell | Time will tell |
The good news is, 10% is more than enough to build up impressive retirement wealth even when starting from scratch at the age of 50 with only £500 a month to spare. And by letting compounding work its magic for 17 consistent years, a brand new portfolio could go on to reach £266,132.
Maximising wealth
Having an extra quarter-million for retirement is definitely helpful. But for successful stock pickers, even more wealth could be unlocked. And even if a portfolio only generates an extra 3% above average, that’s enough to add roughly another £100,000 to a pension pot.
There’s never any guarantee with investing. But one S&P 500 business I’ve recently added to my portfolio is Toast (NYSE:TOST).
The cloud-based restaurant management platform is now powering 156,000 locations across the US, enabling restaurateurs to handle payment processing, ordering, delivery, employee payroll, and even capital financing.
By offering easy and quick solutions to almost all the headaches restaurant owners have to deal with, adoption is accelerating, and that’s translated into phenomenal revenue and profit growth. Of course, there are still risks.
Toast is not the only restaurant tech-solution out there, limiting its subscription pricing power and transaction take rates. The latter is a far bigger handicap since the bulk of cash flow comes from charging small fees on each transaction moving through its platform. It also makes the business far more sensitive to economic downturns since consumers are less likely to dine out when trying to minimise discretionary spending.
Nevertheless, I remain bullish for the long run. There are over 700,000 restaurants in the US alone. And while Toast already controls the lion’s portion of market share, its growth potential remains substantial, especially once it accelerates international expansion. That’s why I think growth investors may want to take a closer look.
