3 Reasons Why Now Is the Time to Own the S&P 500

Whether you buy the iShares S&P 500 Index Fund CAD Hedged (TSX:XSP) or another of the eight TSX-listed ETFs that track the U.S. index is up to you, but do buy. Here’s why.

| More on:
The Motley Fool

The U.S. election campaign is, thankfully, just about over with nothing left for Americans to do but vote, and with the FBI dropping the case against Hillary Clinton regarding her infamous emails, U.S. stocks are ready to rebound.

If you don’t already have some U.S. equities in your portfolio, hedged or unhedged, such as iShares S&P 500 Index Fund CAD Hedged (TSX:XSP) or Vanguard S&P 500 Index ETF (TSX:VFV), now is the time to own the S&P 500.

Nine consecutive days down

The S&P 500 hasn’t closed lower for nine consecutive days since 1980, just days after Ronald Reagan was elected president. Thirty-six years have passed since the former California governor handily beat Jimmy Carter to return the Republicans to the White House.

While the index has seen deeper and far more damaging market corrections—the S&P 500 has lost 3.1% since the losing streak started October 25—it does provide investors who’ve yet to invest in U.S. equities with a good entry point.

Regardless of whether you feel the Republicans or Democrats are going to win the election—most polls suggest a narrow margin of victory for Clinton—it’s important to have an equity portfolio that’s diversified not just by sector or type or size, but also by geography.

U.S. stocks are 51% of world’s market cap

“Reformed Broker” blogger and financial planner Josh Brown had an interesting post over the summer about home country bias. He compared five different countries and their investors’ tendency to put too much of their equity portfolio in domestic stocks rather than diversifying on a more global basis.

Out the U.S., Canada, the U.K., Australia, and Japan, only the Brits did a reasonable job of investing outside their own country. The U.K. accounts for about 7.2% of the global market cap, while the British allocate 26.3% of their equity portfolios to domestic equities.

Here in Canada we allocate 59% of our equity portfolios in domestic equities despite the fact our market cap represents just 3.4% of the world’s total. Meanwhile, our neighbours to the south put 79.1% of their equity portfolios into U.S. stocks–1.6 times the U.S. contribution (50.9%) to the world’s total market cap.

I can’t tell you what portion of your portfolio should be in U.S. stocks or ETFs, but it should definitely be higher than zero. An ETF linked to the S&P 500 would be a good place to start.

What if Trump wins?

The world is not going to end should Trump prevail in the U.S. election. Back in 2008 after the markets cratered, it was pretty hard to imagine stocks being where they are today; yet here we are with the S&P 500 at 2,118–210% higher than its March 2009 low.

What will happen one year or three years from now is anyone’s guess, but what we do know is that the S&P 500’s average annualized total return over the last 100 years is approximately 6.8%. Time in the market is the true recipe for success.

Worry all you want about Mr. Trump, but corrections like the one we’ve just seen over the last nine days provide regular investors like you and me an opportunity to buy the S&P 500 at a discount.

As Warren Buffett says, “be fearful when others are greedy and greedy only when others are fearful.”

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned.

More on Investing

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Investing

3 TSX Stocks I’d Buy This Week

Are you struggling to find stocks to add to your portfolio this week? Here are my three top picks!

Read more »

Target. Stand out from the crowd
Dividend Stocks

3 Oversold Stocks to Buy for Passive Income

These three oversold stocks aren't just great right now for high passive income, but provide exposure to high-growth industries.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Investing

3 Stocks to Hold in Your TFSA for Easy Tax-Free Income

Telco stocks like BCE Inc (TSX:BCE) offer high dividend income -- especially when held in a TFSA!

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Investing

Why Shawcor (TSX:SCL) Stock Jumped 9% in September

Shawcor Ltd. (TSX:SCL) stock has rallied off big gains after announcing that big changes may be ahead over the next…

Read more »

Mature financial advisor showing report to young couple for their investment
Bank Stocks

Retire Young: How to Turn a TFSA or RRSP Into $1 Million

Here’s how you can turn your TSFA or RRSP into $1 million or more to plan your early retirement.

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Cannabis Stocks Jump: What Investors Need to Know

Cannabis stocks have started to recover in recent weeks, showing there might be signs that now is the time to…

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: Invest $30,000 to Earn $500,000 + $7,800 in Tax-Free Dividends

Make the power of compounding work for you and turn a $30,000 investment into $500,000 in the next 20 years.

Read more »

Online shopping
Tech Stocks

Why Shopify Stock and Other Tech Stocks Jumped on Tuesday

Shopify (TSX:SHOP) stock and others started climbing on Oct. 4, but will the rise continue or fall back?

Read more »