Is S & P 500 the best option?

___________________________________________
“Hi all,

Due to recent job changes, my wife and I are able to invest around $500 a fortnight. I’ve been lurking around here for a while and through what I’ve read from other posts, the S&P500 is what is recommended most of the time. Is this the best option?

I realize $500 a fortnight only equates to $13000 year which for most of what I’ve read here is not much in comparison but coupled with our superannuation, we are hoping to maximize what we can in around 5 years with the goal of a decent deposit for purchasing a home.

We both also contribute 6% of our paychecks along with 6% contributed by the company to the Dairy Industry Superannuation scheme.

TIA.”
(Original question on Reddit)
___________________________________________

It’s great that you’re looking to invest and plan for your future. Investing regularly, even if it’s a modest amount, can yield significant returns over time. While the S&P 500 is a popular option for many investors, the best choice for you depends on your financial goals, risk tolerance, and time horizon. Here are a few points to consider:

Diversification:

While the S&P 500 can be a good investment, it’s important to diversify your portfolio. Investing all your money in a single index like the S&P 500 can expose you to a higher level of risk. Consider diversifying into different asset classes, such as bonds, international stocks, or even some exposure to alternative investments like real estate or commodities. Diversification can help spread risk and potentially improve your overall returns.

KiwiSaver for Retirement:

It’s great that you and your wife are contributing to the Dairy Industry Superannuation scheme. Make sure to take full advantage of employer contributions and any government incentives offered through KiwiSaver. These accounts can provide significant benefits for your retirement savings, and it’s important to consider them as part of your overall financial strategy.

Invest in a Mix of Assets:

Consider your financial goals and risk tolerance when constructing your investment portfolio. Different assets have different risk profiles and potential returns. A balanced portfolio might include a mix of stocks, bonds, and other investments. Make sure your asset allocation aligns with your long-term objectives.

Risk Tolerance:

Assess your risk tolerance carefully. The S&P 500 can be volatile, and if you have a shorter investment horizon, you may want to be more conservative. On the other hand, if you have a longer time horizon and can weather market fluctuations, you might be able to take on more risk in pursuit of higher returns.

Time Horizon:

You mentioned a goal of saving for a home deposit in around 5 years. Your investment strategy should be influenced by your time horizon. If your goal is relatively short-term, you may want to focus on more stable investments and gradually shift to a more conservative asset allocation as your home purchase date approaches.

Seek Professional Advice:

Given your unique financial situation and goals, it can be valuable to consult with a financial advisor. They can help you create a tailored investment plan that aligns with your objectives and risk tolerance. They can also provide insights into tax implications and strategies for optimising your investments.

To summarise, while including the S&P 500 in your investment strategy can be a good idea, it’s crucial to also take into account other factors such as diversification, your KiwiSaver contributions, asset allocation, risk tolerance, time horizon, and seeking professional advice. It’s important to tailor your investment strategy to your individual financial situation and objectives.

Hope this helps.

Regards, Clive Fernandes (Financial Adviser)

Director – National Capital

Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.