The S&P 500 closed at 1527 on March 24, 2000. (Intraday high: 1553)
Go to the Bureau of Labor Statistics’ inflation calculator. It is here. Type in 1527 into the box. Select 2000. Click “Calculate.” This number appears: 2105. That is where the S&P 500 should be to compensate for price inflation. This is break-even, before taxes.
Then the investor pays 23.8% in capital gains taxes on any increase above 1527.
The S&P 500 closed on November 20, 2014 at 2053.
Anyone who bought and held a no-load S&P 500 index fund on March 24, 2000 has lost 23.8% on any nominal profits. So, there were no profits. There were losses. The investor did not come close to break-even.
To experience this loss of wealth, he did not use that money for over 14 years.
What about dividends? Dividends were low, 2000-2014: around 2%. They were taxed at ordinary income rates. An investor could have put his money into a tax-free municipal bond fund in 2000 and have made far more money on his investment: anywhere from 4% to 5% per annum.
Buy and hold the S&P 500? Dumb. Really, truly dumb.
Warren Buffett says investors should invest 90% of their liquid funds in a no-load S&P 500 fund. This is what the smartest stock market investor in history recommends. I don’t blame him. If people follow his advice, their money will put a floor under the stock market. His money is in the stock market. So are his investors’ money. But it is not in an index fund.
Never ask a barber if you need a haircut.
The S&P 500 is for losers. This has been true for over 14 years. Yet there are investment advisors who still recommend a no-load index fund of the S&P 500. Think of these people as slow learners.
We are in a stock market bubble created by the Federal Reserve System since 2008. There is going to be a major decline in stocks in the next recession. There will be another recession.
“But my investment advisor told me to do this back in 2000.” Find a new advisor, assuming that he did not retire five years ago. He should have retired on March 24, 2000.