Over the previous few years, it hasn’t been too troublesome to beat the FTSE 100‘s returns. Nonetheless, the S&P 500 is a distinct beast and most energetic fund managers have struggled to match the hovering index.

That needn’t hassle an on a regular basis investor although, as a result of there’s a easy approach to spend money on the S&P 500. That’s via a low-cost index tracker just like the Vanguard S&P 500 UCITS ETF (LSE: VUAG), which I feel is value contemplating.

However how a lot might a 30-year-old investing £150 weekly within the US index make by the point they retire? Let’s discover out.

A tech-driven index

The S&P 500 is made up of the five hundred main public corporations within the US. Whereas these corporations span varied industries, a fast have a look at the highest 10 names at the moment exhibits that that is very a lot a tech-dominated index.

This is sensible, after all. We’re residing via a strong technological revolution made attainable by many of those corporations. In some methods, their platforms have change into indispensable tech utilities, with out which massive components of the worldwide economic system would stop to operate.

Over the ten years to November 2024, the S&P 500 has delivered a mean annual whole return of 12.7%.

If this run have been to proceed, a 30-year-old investing £650 a month — the equal of £150 per week — and reinvesting their returns in an index tracker fund from at the moment might have a portfolio value £6,104,465 in 38 years’ time.

This may be a cracking outcome from fairly modest sums invested recurrently. It proves that calling compounding curiosity a miracle isn’t farfetched!

As talked about, this determine assumes all dividends are reinvested, and doesn’t depend broker-related charges and international alternate actions. Inflation over this time would additionally erode future spending energy.

Nonetheless, £6ms would nonetheless present a really snug retirement for most individuals. For instance, I’d think about one might nonetheless simply journey the world in luxurious with such a sum, even in 2063.

Some issues to contemplate

As we all know, previous efficiency isn’t essentially a dependable information to future returns. In earlier a long time, the annual return was extra like 11%. On this state of affairs, the steadiness after 38 years would ‘only’ be £3,888,652.

Plus, there are dangers. One is that the S&P 500 is now extra concentrated than ever earlier than. The highest 10 shares account for round a 3rd of the entire market capitalisation. And fewer than 30 make up half!

Furthermore, as a consequence of surging shares associated to the synthetic intelligence (AI) mega-trend, the index is now very expensive, traditionally talking. The price-to-earnings (P/E) ratio is round 28.

As Apollo International Administration‘s chief economist Torsten Sløk lately famous: “Buying the S&P 500 gives the impression that you are buying 500 different stocks and diversifying your investments. But the reality is that the high and growing concentration in the S&P 500 continues to be a major problem. In short, investors should ensure that their portfolio is not all levered to Nvidia earnings.”

The long run

For a 30-year-old investing recurrently for retirement, I don’t suppose Nvidia’s earnings matter an excessive amount of. In 1987, some 38 years in the past, the agency didn’t even exist, together with Tesla, Alphabet’s Google, Meta, and Amazon.

Over the subsequent a long time, shares and industries will come and go. However I anticipate America and the S&P 500 to maintain powering larger.