Experts evaluate the effectiveness of Warren Buffett's S&P 500 investment strategy.

• An S&P 500 index fund can often outperform when it comes to stock investing.
• Warren Buffett emerged victorious in a ten-year wager against hedge fund managers, proving that a basic S&P 500 index fund could outperform them.
• Experts caution that sticking to one strategy may limit opportunities for diversification.

In 2007, Warren Buffett wagered $1 million that he could surpass hedge fund managers' performance over a ten-year period by investing in an S&P 500 index fund.

In 2017, he won.

Some investors are investing in the S&P 500 through exchange-traded funds or mutual funds.

The S&P 500 index consists of 500 prominent U.S. companies, and its weightings are determined by the market capitalization of each listed company's outstanding shares. The index is rebalanced every quarter.

The three largest ETFs that track the S&P 500 index are SPY, IVV, and VOO, which together make up almost 17% of the U.S. ETF market, according to Morningstar.

In 2024, VOO has surpassed SPY as the leader in attracting new money among the three funds, with $71 billion in net inflows over the first nine months, according to Morningstar.

Future index performance could be 'muted'

In 2024, the S&P 500 index has achieved new all-time highs, with a year-to-date increase of approximately 20% as of Oct. 8. Over the past 12 months, the index has experienced a 33% climb.

The index has outperformed some experts' predictions due to a stronger U.S. economy.

Larry Adam, chief investment officer at Raymond James, stated that the recession everyone was anticipating did not occur.

The U.S. economy is predicted to have a soft landing, but the run-up in stocks may not be as strong, according to a St. Petersburg, Florida-based firm.

Adam predicted that there would be a more subdued upward performance.

On average, the market experiences a 1.5% decline from the start of October to Election Day, according to historical data.

Adam stated that the market dislikes uncertainty, which is the cause of that,

He stated that the market usually regains those losses and advances further.

Goldman Sachs has increased its S&P 500 index forecast for 2024 to 6,000 from 5,600, while Tom Lee of Fundstrat Global Advisors predicts a target of 6,000 for the S&P 500 by year-end.

S&P 500 'hard to beat in the long run'

Investing in the S&P 500 index is a popular strategy.

According to Bryan Armour, director of passive strategies research at Morningstar, there are reasons why it works so well and these reasons will never change.

The benefits of active management are numerous, including low cost, the ability to seize a significant portion of opportunities, and its enduring success in the long run, as stated.

Armour stated that the S&P 500 is typically more diversified and therefore better than most investment strategies.

He advised against trying to time the market and instead suggested taking a set-it-and-forget-it approach.

Investing solely in an S&P 500 index fund on the equity side of a portfolio carries certain risks.

Investors have been doing exceptionally well by investing in the S&P 500 over the past seven or eight years, according to Sean Williams, a certified financial planner and principal at Cadence Wealth Partners in Concord, North Carolina.

He remarked, "Many people possess the mindset of, 'Why should I change anything?'"

It is not advisable to have everything in one position, even if it is large U.S. companies that have excelled in the past decade, according to Williams.

For example, he suggested exposure to international, small- and mid-cap companies, and real estate.

An S&P 500 index strategy carries a risk of concentration, as demonstrated by the 31.7% allocation to the information technology sector, which includes companies such as , , and .

To reduce the risk of concentration, investors may opt for a total market portfolio like VTI, which is traded under the ticker symbol, Armour advised.

Morningstar analysts believe that small value ETFs are currently undervalued, and investors may want to consider purchasing them.