Revising My S&P 500 "6000" Benchmark, Does The Election Change Anything?
I'm making a small change to my investments following the election
Introduction
Last year, I explained my “4800 strategy”, which you can read here. In a nutshell, I set a fluid S&P benchmark and anytime I buy into an S&P 500 index fund under that benchmark, it’s basically on sale. Since then, the S&P 500 has crossed not only 4800, but it also passed 5000 shortly after. I reset the benchmark to 6000 in February, which was hit this week so it’s time to set a new benchmark.
I’ll also look at whether the recent stock market surge changes my investment strategies and a small change I am making following the election results.
A quick reminder that this is not financial advice, just myself sharing my strategies, investments, stocks, index fund strategies, what I'm buying, and where I plan to take those investments. Everyone’s financial goals are different. No financial decisions should be made solely on this newsletter, which is for informational and entertainment purposes only and is not intended to be a substitute for advice from a professional financial advisor or qualified expert.
Also, if you found this newsletter helpful, please share it with one friend who might find it useful by using the button below.
The S&P 500 Crosses 6000. Resetting the benchmark.
I explained my benchmark strategy last year, which is essentially setting a fluid S&P 500 benchmark that I believe is achievable within the next couple of years. It’s something I found useful in the past when the market would be dropping. If my benchmark was 4800 as it once was, and the S&P 500 dropped to 4000, that would mean I’m buying at a 17% discount, so any dollar I put in that day will be up 17% when the S&P 500 eventually hit 4800.
The S&P closed at a record high of 6001.35 on Monday after hitting 5000 this past February, so a 20% gain in 9 months. I mentioned in my newsletter in February when I reset my benchmark that I could see the S&P 500 hitting 6000 this year if the economy stayed bullish. It dropped slightly since Monday but is still hovering around the 6000 mark.
The official S&P 500 benchmarks used to be every 100, so 100, 200, etc. Once it hit 1000, it became every thousand, so 1000, 2000, etc. But every time it’s raised, the percentage to hit the next benchmark is less. For instance, to go from 1000 to 2000 is a 100% increase. But to go from 4000 (which the S&P 500 first crossed on April 1, 2021) to 5000 (which it crossed on February 9th) was a 25% increase, which took under 3 years. To go from 5000 to 6000, a 20% increase, took 9 months.
Now, it’s time to move on from “6000” and make friends with “7000.” How long until we get there? With a new administration and market unknowns, anything’s possible. It could be next year, or it could take years. Either way, if it never happens, we’ll have more significant issues than missing my 7000 goal.
Waiting For The Market To Cool Before Investing?
When the market is this hot, a lot of people have second thoughts about investing and think it’s better to wait until prices come down. I personally go by the age-old saying, “Time in the market trumps timing the market.” Basically, I prefer being in the game rather than standing on the sidelines.
Timing the market involves buying and selling stocks based on short-term predictions. Although it sounds tempting, accurately forecasting the market’s highs and lows is extremely challenging—even for the pros! Studies show that missing even a handful of the best-performing days in the market can dramatically reduce overall returns.
A study by JP Morgan revealed that from 2001 to 2021, missing the best 10 trading days reduced an investor’s returns from 9.5% annually to only 5.3%. Considering that the top 10 days only make up 0.2% of trading days over 20 years, the risk of being out of the market during these days is very high. The moral? Don’t miss out. Stay invested and enjoy the ride (but maybe buckle up).
Staying Careful
On the flip side of sitting a hot period out, it’s also important to maintain a level head and a long-term perspective when the market is on fire. I always try to stick to my investment framework, which helps avoid knee-jerk decisions driven by short-term hype. Even in a bull market, there are risks to consider:
Overvaluation: When stocks rise rapidly, they may become overvalued, leading to potential price drops in the future.
Market Corrections: Even the strongest bull markets experience periods of decline.
Emotional Investing: The excitement of a bull market can lead to impulsive decisions, such as buying high and selling low.
I believe that the best time to start investing was yesterday, but the second-best time is today. If you dollar-cost average your investments (you can read about dollar-cost-averaging here), it helps average out the cost and mitigate the impact of market volatility, regardless of whether it’s a bull or a bear market. Successful investing is a marathon, not a sprint. So regardless of how hot the market is right now, I’m going to continue to dollar-cost average in our various investment accounts.
VOO Update
For those new to this newsletter, for a real-world example of dollar-cost-averaging and how I utilize it, I bought the Vanguard S&P 500 ETF (VOO) which tracks the S&P 500 in July of 2022, and have been automatically investing in it every week (I do have VOO in several of our portfolios). You can read the details on how much I initially invested and how much I’m adding every week here.
Here is an updated look at how it’s performing after the initial $5000 investment on June 16th, 2002. As seen in the chart below, it has returned about 32% and is up $28,,039,90, bringing the total value to $115,869.48.
These returns are higher than the norm because last year was a hot year, and this year has been on fire so far as well. Over the last 30 years, the average annual return for the S&P 500 has been about 10%.
Will The Election Results Change My Investments?
As you can probably tell, my core investment strategy will not change. This century, the stock market has seen significant increases under every presidency except for George W. Bush’s. Just comparing from President Biden’s inauguration through the end of October 2024, the S&P 500 has been up 51%. The market under President Trump was also positive, as it was up 44.5% from Trump's inauguration through the end of October 2020. The S&P 500 was up 66.1% through the comparable time period for former President Obama. For former President George W. Bush, the index was down 15.8%.
The one area where I am making a minor change is my fixed-income portfolio. I had been regularly buying bonds and CDs when the Feds started raising interest rates in 2022. I had pretty much stopped once they started cutting rates in September, however, bond yields surged after Trump’s re-election last week. Bond yields pulled back a little today following the Federal Reserve’s inflation report, however, they remain high. I plan to buy another 20-year Treasury this month and will continue to add longer-term bonds as long as yields stay high.
Conclusion
The old saying about how “time in the market” beats “timing the market” has always proven to be true for me. The lesson I teach my daughters is to stay invested and continue buying at regular intervals, and never let a hot or cold market intimidate you.
That's it for this week! As always, no financial decisions should be made solely on this newsletter, which is for informational and entertainment purposes only and is not intended to be a substitute for advice from a professional financial advisor or qualified expert. If you haven’t already, please subscribe to this newsletter below and never miss an update: