I don’t really believe in doing a bunch of different things to get a subpar result if you can just do one thing to get a superior result. As such, I’m not going to tell you “50 investments you can make that you can maybe give you decent results”. In this post, I’ll show you the safest investment you can make with the highest return. Period. Just one.

And this investment is the S&P 500.

Why The SP500 Is The Safest Investment With The Highest Return

According to this CNBC article (sorry), here are the statistics for how active funds perform against the S&P 500:

• 64.49% of funds are underperforming the S&P 500 in the past year.
• 85% of funds underperform the S&P 500 looking back in the past decade.
• 92% of funds do worse than the S&P 500 in the past 15 year period.

Keep in mind that these actively managed funds are a team of extremely highly paid folks whose full-time job is to squeeze alpha from the market.

Over the long term, more and more funds start underperforming the S&P 500.

So, even if you could do as good research as an entire hedge fund (you can’t, and you’ll do worse), over 15 years you’d only have an 8% of outperforming the S&P 500.

If you still have qualms about investing in the S&P 500 or looking to pick individual stocks, as yourself which of the following is better:

• An 8% of beating the S&P 500 over 15 years, where every waking minute of those 15 years is dedicated to beating the market? OR, would you rather
• Just dollar-cost average into S&P 500? And instead of having background anxiety everyday looking at the market, just check it once a year and know that by doing absolutely nothing, you’d be beating most of actively managed funds out there.

In other words: don’t play a fool’s game. S&P 500 gives you more money for infinitely less work.

Easy Diversification

One of the most important things you can do to 1) minimize risk, and 2) get consistent returns is to diversify your portfolio.

If a particular market sector crashes, it’s likely the other sectors covered in S&P 500 will blunt your losses.

Conversely, if a sector is gaining rapidly, it’s likely that the other sectors in your S&P 500 will create “drag” on your profits. But this isn’t as huge a problem as you think: it’s much better to get slow, consistent returns (less risk, less volatile) than to try and get some single outsized returns. A case study in the “20 Mile March” chapter in Jim Collin’s Great By Choice comes to mind:

Suppose you have the opportunity to invest in one of two companies, Company A or Company B…

Company A will achieve 25 percent average annual growth in net income over a 19-year period.

Company B will achieve 45 percent average annual growth in net income over the same 19 years.

Stop and think: which company will you want to invest in? Most people, including us, would invest in Company B, given no additional information…

Company A is Stryker and Company B is USSC. Every $1 invested in Stryker at the end of 1979 (the year of its initial public offering) and held through 2002 multiplied more than 350 times. Every $1 invested in USSC on the same date generated cumulative returns that fell below the general market by 1998, and then…it disappeared from the chart.

What happened: aggressively chasing alpha introduces high variance returns. With variance, it only takes one “severe” event to wipe out all your equity.

An investment in S&P 500 is like Stryker in this case: it gives the safest, most consistent, highest return over time without the insane variance that comes with individual stocks.

S&P 500: You’re Betting On America

The S&P 500 represents the best and most profitable American companies, across all different sectors.

Thus, a bet on S&P 500 is a bet on the American economy. You’ll always win, and you’ll win consistently. Because your investment is on the American economy, it’s the safest and you’ll also enjoy the highest possible return.

“But the S&P 500 can crash right? I’ve seen it crash before!”

It’s true that the S&P 500 could crash. But if you look at previous crashes, the S&P 500 generally goes into a bear market for an extremely short amount of time compared to the time it spends a bull market.

“But what if the S&P 500 is down for a super long time?”

If the S&P 500 is down for a very extended period of time, it indicates a pervasive economy issue. In those cases, it’s unlikely you’d be able to get away from those problems with other investment opportunities. Some examples of how this could happen:

• Wartime causing all assets to crash.
• A repeat of the Great Depression (very unlikely since the Feds have learned their lessons over the past 90+ years and now know how to QE).
• The US dollar getting replaced by another currency completely (also very unlikely since the USD is the world reserve currency, and most international transactions wire through SWIFT – a change in the world reserve currency would mean a fundamental change in how money is exchanged across countries).

So yes, S&P 500 could crash for a very long time, you’ve got bigger problems. As such, even in such black swan cases, the S&P 500 is still the safest investment compared to anything else, and probably will still give you the highest return.

How Do I Buy The S&P 500?

The beauty of this is that it’s extremely easy and straightforward. And you can just do a recurring buy on your favorite brokerage and you’re done, forever.

No checking the market every day. No anxiety. No stress.

Just passive appreciation with 100% confidence that your investment will give you an insane return over the long term when compared to riskier strategies.

There’s a bunch of other indices that trace the S&P 500, but they all perform pretty much the same. I personally use $SPY.

Plug: My recommendation for a broker is E-Trade. I’ve been using them since high school and their interface has always been easy to use, and their taxes are straightforward. Sign up here so they’ll give me a $50 Amazon Gift card so I can buy half a week’s groceries.

Conventional Wisdom

What I’m talking about here is nothing new, and you probably haven’t heard anything here you haven’t heard before.

It’s age-old wisdom. Even in older books like the Intelligent Investor, they highly recommend you invest in a diversified ETF – in their book it was mostly comparing funds against DJIA performance – but the story hasn’t changed.

This blog’s branding generally is geared towards an unconventional approach to most things: how to handle corporate America, finance, etc. But in some cases, it’s hard to argue against conventional wisdom.

• No study out there has ever shown that there’s a consistent and/or reliable way to beat S&P 500.
• Other words, in all likelihood, SP500 is the safest and best investment with the highest return you could possibly do. And it’s extremely low-effort! I can’t emphasize this enough! Time is money, and being distracted by the variance of the stock market takes up valuable time out of your day where you can be making alpha elsewhere.

I know I said I wouldn’t do this, but below are some other possibilities if you really hate the S&P 500 for some weird reason. All the below works basically the same way: you’re getting low-effort diversity, betting on the American economy, and you’ll achieve the highest return over a long period of time while not having a ton of risk.

• DJIA ($DIA).
• Nasdaq composites. If you want to ‘chase alpha’ you can do stuff like $TQQQ (3x leveraged – higher return, but much bigger risk – refer to the Stryker example above for risks associated with a high-variance investment). Notice dips are much more drastic. Snapshots below are perf over 5 years and since ’93. Don’t let the extreme returns fool you: it’s a high return at this moment in time. You could argue it’s outperforming so why not invest in the long-term? Or you could argue that it’s extremely expensive currently. The third picture is today’s market declining. Notice how much more $TQQQ declines. This is the risk you take.

In conclusion, just buy $SPY. And if you want to take some more risk, you might blend your portfolio with $TQQQ.