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If you’re looking to grow your wealth, you’d be forgiven for feeling like you couldn’t choose the US market right now.
So far this year, the S&P 500 Index – an index of America’s 500 biggest companies – has hit a series of record highs.
|
31.03.23-31.03.24 |
31.03.22-31.03.23 |
31.03.21-31.03.22 |
31.03.20-31.03.21 |
31.03.19-31.03-20 |
S&P 500 Net Total Return Index |
29.27 |
-8.20 |
15.16 |
55.56 |
-7.53 |
Past performance does not predict future returns. Source: Invesco, Bloomberg L.P., FactSet as at 31 March 2024. Data in USD.
As an investor, it’s natural to worry you’ve missed the boat when you read headlines about these highs and remember the age-old ‘buy low sell high’ mantra. But this kind of thinking can be a psychological trap, one that leads to ‘analysis paralysis’.
And not just that: thinking less about timing highs and lows, and instead prioritising time in the market, can be liberating for you and, potentially, better for your portfolio in the long run.
Let’s look at some reasons why a new market high isn’t always a warning sign — despite what some may say. Here are three ways to put things into perspective:
Think back four years, to March 2020 and the harrowing headlines that accompanied the stock market’s Covid lows. Back then, the S&P 500 Index closed at 2305. In April, it touched 5200, a 125% rise from that bottom. Ignoring the headlines and hanging tight in an investment that tracks the index, such as an ETF, would have paid off for your portfolio.
Of course, this is easy to say with the benefit of hindsight and is not guaranteed. But it does highlight that staying invested could yield rewards.
It can also help you keep a lid on costs. The more you trade, the greater your costs and the less time you will spend invested.
The S&P 500 Index is the bellwether for the US economy – an economy that is resilient and distant from conflict, moving towards energy self-sufficiency, and likely to start cutting interest rates relatively soon. Its leading lights include the ‘magnificent seven’ of Alphabet (owners of Google), Amazon, Apple, Meta, Microsoft, Nvidia (an AI leader) and Tesla.
One of the simplest and cheapest ways you can access the opportunity is via an exchange-traded fund or ETF.
If you’re considering investing in an ETF, it’s worth remembering they don’t all work the same way.
When doing your research, you might see two options: physical on one hand, and synthetic or ‘swap-based’ on the other. But don’t worry. It’s not as complex as it sounds.
Physical ETFs buy the stocks in an index. Swap-based ETFs replicate the performance of those stocks without owning them directly.
And, swap-based ETFs can have clear advantages, especially in the US.
That’s because US tax law currently allows European-domiciled ETFs using swaps to replicate S&P 500 Index returns to avoid paying what’s known as ‘withholding tax’ on any dividends they receive from the companies in the index. They can therefore receive its total return, while their physical equivalents face at least a 15% hit. The bigger the dividends, the more noticeable the advantage.
Take our world tour to see where swap-based ETFs work best
Because of this, swap-based S&P 500 ETFs can outperform their physical peers if you’re based outside of the US. That can be a nice boost for a portfolio, given US equities can often be the biggest single allocation.
Discover our S&P 500 ETF – it’s the world’s biggest swap-based ETF for a reason
ETF Investing (Exchange Traded Funds)
US Equities monthly update – June 2024
US equity markets clawed back all of April’s losses and continued to reach new record highs, before giving up some of those gains in the final days of the month. Reassuring comments from the Fed at the beginning of the month had set markets on their way, while NVIDIA remained one of the biggest catalysts at the stock level.
Monthly fixed income update
June saw a resurgence in political risks with a snap election called in France, the upcoming general election for the UK, and the first televised debate between Trump and Biden ahead of the presidential election in the US. Read our latest thoughts on how fixed income markets performed during the month and what we think you should be looking out for in the near term.
Monthly gold update
The gold price was little changed in June, down just 0.2% despite a pause in gold purchases by the People’s Bank of China and surprisingly strong non-farm payrolls data. Discover insights into the key macro events and what we think you should be keeping your eyes on in the near term.
1 Source: Bloomberg, 19 January 2024.
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Data as at 15 April 2024, unless otherwise stated.
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