Is investing 100% in an S&P 500 ETF smart?

Question:

Hello Dr. Somborac.  I’ve been enjoying the weekly posts.  I’m a long time DIY investor and have traditionally done a 30% US, 20% Canadian, 15% EAFE, 15% Emerging Markets and 20% bonds.  I have to say I’ve been considering switching to 100% US (with cash holdings as you suggest) as that market is on a bit of a run.  I came across this article today – maybe you can comment?
thanks,
Kevin

https://www.moneysense.ca/save/investing/etfs/sp-500-etf-portfolio/

Monday Morning Millionaire Program Answer:

Thank you for your kind comments Kevin and congratulations on being a long-time Do-It-Yourself investor. That alone will save you a full year’s income at retirement time.

Following the link which you provided, I can see that you are referring to an article titled:

Is investing 100% in an S&P 500 ETF smart?

The article makes no mention of asset allocation which is an important aspect of successful investing. That omission alone detracts from its value.

We emphasize in our blogs that, over the long term, a properly selected U.S. index Exchange-Traded Fund (ETF), one that tracks the S & P 500, held in a tax-advantaged account, has been the investor’s best way for growing savings and is likely to remain so for many years. Simple to set up, simple to manage, requiring attention of just a few hours annually, the program will beat over 90% of portfolios including professionally managed ones. Who could ask for more?

Dumping all Canadian stocks and investing as described in the above paragraph has worked very well indeed since 2005 when the Canadian government eliminated foreign content limits in tax-advantaged portfolios. The top line in the chart below shows what the S&P 500 has done over the last 10 years. The line at the bottom shows the Toronto Stock Exchange index performance.

Concerning diversification by investing in foreign markets, in a previous post we stated that even the safest investing is risky enough. By investing in foreign markets, we add sovereign risk, currency risk, regulatory risk, property rights risk and more. Historically, China and many other autocratic countries have shown total disregard for property rights.

A chart, like a picture, is worth 1000 words. Look at the one below.

Over the last decade, the S&P 500 has outperformed European markets, emerging markets and the Japanese market.

Stating that past performance does not guarantee future performance is a standard investment line. However, imperfect as it is, past performance is the only thing we have as an investing guide.

 

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me