Can index funds beat inflation?
The S&P 500, through index funds from the likes of Vanguard and SPDR, provides long-term returns that have historically outpaced inflation.
Since inflation started declining in July 2022, the growth-oriented Nasdaq Composite index has handily beaten broader measures, such as the S&P 500, for example. Declining inflation also means that bonds bought during the more inflationary period now promise higher "real," or inflation-adjusted, returns.
Commodities (Non-Gold)
An investment in commodities can be one of the most powerful inflation hedges. Raw materials and agricultural products can be traded like securities. Commodities traders commonly buy and sell oil, natural gas, grain, beef and coffee, among others.
For example, if you are able to commit to investing $500 a month in an S&P 500 index fund like the Vanguard 500 Fund (NYSEMKT: VOO), you'll eventually have $1 million, and that includes paying the 0.03% expense ratio in the ETF, meaning you'll pay 3 cents each year for every $100 you have invested in the index fund.
Despite the fact that fund managers do a lot of work to "beat the market" (namely, a market index), they very rarely do. And if they do, it's highly unlikely that they will continue to beat the market over the long term.
The historical average yearly return of the S&P 500 is 12.68% over the last 10 years, as of the end of February 2024. This assumes dividends are reinvested. Adjusted for inflation, the 10-year average stock market return (including dividends) is 9.56%.
Definition of 10 Year Price Total Return
Last Close Price [ 508.26 ] / Adj Prior Close Price [ 155.68 ] (-) 1 (=) Total Return [ 226.5% ] Prior price dividend adjustment factor is 0.84.
- Stocks. Stocks have historically outpaced inflation—annualized returns have averaged about 10% historically. ...
- Inflation-protected bonds. ...
- Real estate. ...
- Diversify your investments. ...
- Explore bond laddering or CD laddering.
Common anti-inflation assets include gold, commodities, various real estate investments, and TIPS. Many people have looked to gold as an "alternative currency," particularly in countries where the native currency is losing value.
Buffett not only sees index funds as the simplest path to achieve a diversified portfolio, but they're also the cheapest.
Do billionaires invest in index funds?
There are many ways to start investing, but one that's worked for billionaires like Warren Buffett is investing in low-cost index funds.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
All investments carry risk. An index fund, like anything else, can potentially lose value over time. That being said, most mainstream index funds are generally considered a conservative way to invest in equities (although there are lesser-known index funds that are thought to carry greater risk).
While indexes may be low cost and diversified, they prevent seizing opportunities elsewhere. Moreover, indexes do not provide protection from market corrections and crashes when an investor has a lot of exposure to stock index funds.
The average active manager will approximate the market return before fees. Their clients will receive that return less the fee charged. Consequently, an index fund charging, say, ⅒ of 1 per cent can be expected to produce a higher net return than an actively managed fund charging 1 per cent.
If you invest $100,000 at an annual interest rate of 6%, at the end of 20 years, your initial investment will amount to a total of $320,714, putting your interest earned over the two decades at $220,714.
One of those tools is known as the Rule 72. For example, let's say you have saved $50,000 and your 401(k) holdings historically has a rate of return of 8%. 72 divided by 8 equals 9 years until your investment is estimated to double to $100,000.
For a point of reference, the S&P 500 has a historical average annual total return of about 10%, not accounting for inflation. This doesn't mean you can expect 10% growth every year; you could experience a gain one year and a loss the next.
In the last 30 Years, the SPDR S&P 500 (SPY) ETF obtained a 10.54% compound annual return, with a 15.10% standard deviation. Discover new asset allocations in USD and EUR, in addition to the lazy portfolios on the website.
VOO Dividend Information
VOO has a dividend yield of 1.37% and paid $6.41 per share in the past year. The dividend is paid every three months and the last ex-dividend date was Mar 22, 2024.
What is the 3 year return of the S&P?
S&P 500 3 Year Return is at 32.26%, compared to 33.72% last month and 58.99% last year. This is higher than the long term average of 23.25%. The S&P 500 3 Year Return is the investment return received for a 3 year period, excluding dividends, when holding the S&P 500 index.
As of April 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
| Bank name | Account name | APY |
|---|---|---|
| Khan Bank | 365-day, 18-month and 24-month Ordinary Term Savings Account | 12.3% to 12.8% |
| Khan Bank | 12-month, 18-month and 24-month Online Term Deposit Account | 12.4% to 12.9% |
| Yield | N/A | Up to 12% |
| Crypto.com | Crypto.com Earn | Up to 14.5% |
Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.
Prioritize paying down high-interest debt
If you have any credit card debt, that debt will increase at a higher rate, and become more expensive over time. Avoid that extra expense by taking steps to pay down any credit card debt you might have and paying off your balance each month if you can.
