The S&P 500 Index is made up of the 500 largest companies that are profitable and publicly traded and domiciled in the United States. Companies like Home Depot, Apple, and Walmart are all included in the S&P 500. So, how safe is it to invest in this index? Safety is based on the amount of time that you keep your investment within the index. It really depends on how long you’re planning to remain invested. The shorter the time frame, the greater the chance that you may lose value. The longer the time frame the smaller the chance that you would lose value.
After your first year invested in the S&P 500, there’s a 27% chance that you may have experienced a loss of value. However, if you remain invested for at least 3 years your chance of losing value decreases to 16%. In other words, you have an 84% chance of having a higher valuation at the end of three years. At the same time, if you stay invested for a 7-year period, your chance of having a higher valuation goes up to 91%. Furthermore, by the time you remain invested for 14 years, you have a 0% chance of losing money. This means that there’s never been a period of 14 years in length where an investor has lost money if they remain continuously invested in the S&P 500. Consequently, the margin of safety of your investment in the S&P 500 is based on the length of time that you’re invested in it. The longer you keep your investment, the greater is your margin of safety.
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