Has anyone ever lost money on index funds?
As with all investments, it is possible to lose money in an index fund, but if you invest in an index fund and hold it over the long-term, it is likely that your investment will increase in value over time.
While they offer advantages like lower risk through diversification and long-term solid returns, index funds are also subject to market swings and lack the flexibility of active management.
Because the goal of index funds is to mirror the same holdings of whatever index they track, they are naturally diversified and thus hold a lower risk than individual stock holdings. Market indexes tend to have a good track record, too.
And while theoretically possible, the entire US stock market going to zero would be incredibly unlikely. It would, in fact, take a catastrophic event involving the total dissolution of the US government and economic system for this to occur.
To be sure, if you have the time, knowledge, and desire to create a portfolio of individual stocks, by all means, go for it. But even if you do own individual stocks, index funds can form a solid base for your portfolio. Index funds offer investors of all skill levels a simple, successful way to invest.
It's easy to see why S&P 500 index funds are so popular with the billionaire investor class. The S&P 500 has a long history of delivering strong returns, averaging 9% annually over 150 years. In other words, it's hard to find an investment with a better track record than the U.S. stock market.
Disadvantages include the lack of downside protection, no choice in index composition, and it cannot beat the market (by definition).
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.
If you're still investing $100 per month, you'd have a total of around $518,000 after 35 years, compared to $325,000 in that time period with a 10% return. There are never any guarantees in the stock market, but with the right strategy, a little cash can go a long way.
While there are few certainties in the financial world, there's virtually no chance that an index fund will ever lose all of its value.
Can you live off index funds?
The short answer is a resounding yes. Let's take a look at why this is. While past investment performance doesn't guarantee future results, the return of S&P 500 index funds has been about 9% to 10% annualized per year over long periods, depending on the exact timeframe you're looking at.
Think About This: $10,000 invested in the S&P 500 at the beginning of 2000 would have grown to $32,527 over 20 years — an average return of 6.07% per year.
Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.
Investing in index funds can be a good choice for many investors, but it's not ideal for everyone. Index funds lack flexibility and active management, so if you want more control, diversification across various asset classes, or prefer ethical investing, you might consider other options.
The important thing to remember about index funds is that they should be long-term holds. This means that a short-term recession should not affect your investments.
If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment.
| Symbol | Pct of portfolio | |
|---|---|---|
| Apple Inc | AAPL | 41.5% |
| Atlanta Braves Holdings Inc Series C | BATRK | 0.0% |
| Bank of America Corp | BAC | 10.4% |
| BYD Co. Ltd | BYDDF | 0.6% |
In 2007, Buffett bet a million dollars that over the course of a decade, a simple S&P 500 index fund would outperform a basket of hand-picked hedge funds. He picked the Vanguard 500 Index Fund Admiral Shares (VFIAX). Hedge fund manager Ted Seides from Protégé Partners accepted the bet and picked five funds-of-funds.
| Warren Buffett Portfolio | ||
|---|---|---|
| All time Stats (Since Jan 1871) | Return | +8.75% |
| Std Dev | 14.85% | |
| Max Drawdown | -79.29% | |
| Last Update: 31 March 2024 |
In 2002, the fallout from frenzied investments in internet technology companies and the subsequent implosion of the dot-com bubble caused the S&P 500 to drop 23.4%. And in 2008, the collapse of the U.S. housing market and the subsequent global financial crisis caused the S&P 500 to fall 38.5%.
What is the average return on index funds?
The average stock market return is about 10% per year, as measured by the S&P 500 index, but that 10% average rate is reduced by inflation. Investors can expect to lose purchasing power of 2% to 3% every year due to inflation. » Learn more about purchasing power with NerdWallet's inflation calculator.
The S&P 500 is all US-domiciled companies that over the last ~40 years have accounted for ~50% of all global stocks. By just owning the S&P 500 you miss out on almost half of the global opportunity set which is another ~10,000 public companies.
Exchange-traded funds (ETFs) and index funds are similar in many ways but ETFs are considered to be more convenient to enter or exit. They can be traded more easily than index funds and traditional mutual funds, similar to how common stocks are traded on a stock exchange.
The S&P 500, through index funds from the likes of Vanguard and SPDR, provides long-term returns that have historically outpaced inflation.
The biggest difference between investing in index funds and investing in stocks is risk. Individual stocks tend to be far more volatile than fund-based products, including index funds. This can mean a bigger chance for upside … but it also means considerably greater chance of loss.
