In this day and age, investing in other markets is no longer expensive or complicated. Many people invest in foreign stock markets to capitalise on opportunities outside Singapore.
The US stock market in particular, is one of the most attractive in the world. The New York Stock Exchange (NYSE) and the NASDAQ are the biggest stock exchanges globally, with a market capitalisation of about USD 28 trillion and USD 32 billion respectively at this point of writing.
Mention US stocks and the likes of Tesla, Apple, Amazon, Microsoft typically come to mind. But investing in individual stocks is not without risk. In my opinion, the least volatile option for investors looking to invest in the US market is the S&P 500.
What’s the S&P 500?
The S&P 500 index is the most well-known representation of the US stock market, and several exchange traded funds (ETFs) that track it – VOO, SPY, CSPX – have become household names.
With these ETFs, you’re free from the stress and anxiety of stock picking and market timing. Instead, you get to enjoy the convenience and peace of mind of owning all 500 stocks of the largest US companies.
You get a bit of Apple, Microsoft, Amazon, Tesla, Netflix and many more with just one investment, and it’s this inherent diversification that has helped the index generate long-term average annual returns of 10.7% a year.
Lastly, the S&P 500 ETFs are all extremely inexpensive. They average around 0.05% annually, which means you get to keep more of your investment gains.
The S&P 500 may be better positioned for 2022
The S&P 500 is one of those investments that give you major bang for your buck. The stock holdings are diversified across a broad range of sectors such as technology, healthcare, financials, consumer discretionary, and many more.
This diversification is key. While technology has had a good run over the past several years, the specter of rising interest rates in 2022 could change that. In 2021, we saw energy and financial stocks test new highs. With surging inflation in many parts of the world, traditional sectors like energy, financials, industrials are benefitting from the higher prices.
With inflation comes interest rate hikes. The Fed has signalled at least three rate hikes this year, which could potentially be a headwind for tech and growth stocks. Higher interest rates mean that future profits are worth less today, and that could negatively impact stock prices of tech companies.
The S&P 500 outperformed the tech-heavy Nasdaq in 2021. The S&P 500 ended 2021 with a 26.9% gain – its third straight year of double-digit growth – while the Nasdaq Composite gained 21.4% in 2021.
My favourite way to buy the S&P 500
“Buy the dip” has become a popular strategy – especially for crypto or meme stocks. In essence, you buy a stock after its price has declined from a recent high. If the price rebounds, you’ll make money.
I like taking this strategy with a broad market index like the S&P 500 rather than with riskier assets like crypto or meme stocks. This is because I see the S&P 500 as a long-term investment and don’t mind adding to my holdings whenever there’s a discount.
If the price were to fall further, I’m fairly confident it will eventually rebound if I wait it out. (Over the long term, the S&P 500 has historically recovered from all of its declines.)
As you may recall, the S&P 500 came under pressure last year in September and early October. The decline sparked a flurry of panic selling which further contributed to market volatility.
But what if you had seen the pullback as an opportunity?
If you had invested $10,000 in the iShares Core S&P 500 UCITS ETF (CSPX) on 21 September 2021, the market value of your investment would have been $10,736.65 as of 13 January 2022. This reflects a return of 7.37%, which comes even though the market only bottomed out on 4 October 2021.
Should you buy the dip?
Buy the dip works most effectively if you already have an investment plan in place.
For one, you aren’t sitting on a pile of cash and waiting to enter at the lowest point. It’s impossible to time the market and whilst you’re waiting to make your move, you’re missing out on all the returns in the meantime. (A $10,000 investment on 1 January 2021 would have generated a 25.53% return as of 13 January 2022.)
For me, I see buying the dip for the S&P 500 as a way to enhance my current investments. For example, whenever there is a 4% or 5% pullback in the S&P 500 index, I look to invest more. Having such a guideline helps me to avoid the trap of waiting for the market to bottom – which nobody can predict anyway.
How to invest in the S&P 500
As mentioned, ETFs are an accessible and affordable way to invest in the S&P 500 index. Some of the most popular S&P 500 ETFs include:
- Vanguard S&P 500 ETF (VOO)
- iShares Core S&P 500 UCITS ETF (CSPX)
- SPDR S&P 500 ETF Trust (SPY)
- Invesco S&P 500 Equal Weight ETF (RSP)
Today, buying US stocks in Singapore has become as easy as opening a brokerage account online. You can consider moomoo, Tiger, Interactive Brokers, Syfe Trade and more.
Personally, I think Syfe Trade is worth checking out. From now to 31 March 2022, you get 5 free trades and a low commission fee of just US$0.99 per trade thereafter!
If you’re interested to open a Syfe Trade account, use our referral code FRUGALFOX! You’ll get an additional S$10 cash credit, on top of the Syfe Trade welcome promotion.
This article is for informational purposes only and does not constitute financial advice. Always do your own research before making any investments!