The Ups And Downs Of The S&P 500

Alex Shahidi, JD, CFA®, CFP®, ChFC®, CIMA®, is a Managing Partner and co-Chief Investment Officer at Evoke Advisors.

The Ups And Downs Of The S&P 500


Investors often conclude that they would have performed better by simply investing in the S&P 500 index rather than a well-diversified portfolio. This sentiment is particularly strong when the popular market index delivers exceptional returns, such as the impressive performance since the 2009 market lows, averaging over 15% annually, based on our firm's analysis.

The dominance of great companies in the index and the narrative of continued outperformance further enhance its appeal. After all, how could investing in leading corporations not generate good returns?

Investing in leading companies can deliver poor returns over very long stretches. The issue lies in the market's relative efficiency, as it quickly incorporates all optimism into current stock prices, leaving significant room for disappointment even if the companies perform well.

An analysis of the long-term return pattern of the S&P 500 provides valuable insights into this counterintuitive dynamic.