Is Just Buying The S&P 500 A Prudent Investment Strategy?

By Jack Strulowitz

Much of the investing advice circulating online today is built on simplicity. Pick a broad index fund, buy it consistently, and do nothing else. The S&P 500 is usually presented as the core holding, with the promise that this approach is all anyone really needs.

For people just starting out, this message can be helpful. It lowers the barrier to entry and keeps them from overthinking their way into inaction. As assets grow and investment goals become more complex, that same approach, however, can begin to feel restrictive.

At higher asset levels, the goal shifts from simple market participation to building a portfolio that has historically delivered strong returns while remaining resilient during extended downturns, particularly those occurring close to or during retirement.

The S&P 500 is a powerful engine. But an engine alone does not make a reliable vehicle. Steering, brakes, and suspension matter most when the road gets rough. This is where investing exclusively in the S&P 500 begins to fall short.

The S&P 500 is a market-cap-weighted index, meaning the largest companies have the greatest influence on results. Today, roughly one third of the index is concentrated in just seven companies. These are exceptional businesses, and owning them is not a flaw. The question is how much of a person’s portfolio should depend on this small group of companies?

That concentration is often overlooked because the index contains hundreds of additional holdings. In practice, many of those companies contribute very little to overall performance. The experience of the portfolio is driven primarily by the largest holdings.

Beyond concentration, the S&P 500 represents only one segment of the global market. It includes large U.S. companies and excludes small and mid-sized businesses, which are earlier in their growth cycles, and often respond differently to economic conditions. Smaller companies tend to be more volatile, but they have historically provided distinct sources of return over long periods.

It also excludes international markets entirely.

International equities currently represent roughly 35 percent of global market capitalization. A portfolio that ignores international stocks is making an implicit bet that the rest of the world will remain a secondary contributor to long-term growth indefinitely.

History suggests otherwise.

There have been extended periods when U.S. stocks dominated global returns, and other periods when leadership came from abroad or from smaller companies. The early 2000s provide a clear example. During the so-called Lost Decade, the S&P 500 delivered little to no return for nearly ten years. Investors that were heavily concentrated in large U.S. stocks experienced prolonged stagnation, while diversified portfolios that included international and smaller companies fared far better.

For investors nearing retirement, these distinctions matter. A prolonged period of underperformance or a deep drawdown at the wrong time can materially affect income plans, spending flexibility, and long-term security. The goal is to build a portfolio that can remain resilient across different market environments, including negative ones.

Intentional diversification across market capitalizations and geographic regions reduces reliance on any single source of return and has historically improved outcomes across full market cycles.

Advisory oversight adds another layer of discipline.

Markets are dynamic. Economic leadership shifts. Interest rates change. Inflation, growth, and policy cycles evolve. An advisor who understands these macroeconomic forces can adjust portfolio tilts over time, emphasizing areas of the market that are more attractively valued while reducing exposure where risk has become more concentrated.

One portfolio implementation approach that has become more accessible is direct indexing. Rather than owning a single fund, the investor owns the individual stocks that make up an index, allowing the portfolio to be managed at the security level.

This structure allows for more precise diversification and rebalancing. In taxable accounts, it also enables ongoing tax-loss harvesting, where losses in individual stocks can be used to offset gains or reduce taxable income while maintaining overall market exposure. Over time, this can meaningfully improve after-tax results for higher-income investors.

Direct indexing is not appropriate for everyone, but for investors with sufficient assets, it offers a more flexible and tax-aware way to implement a broadly diversified portfolio.

That kind of ongoing management is fundamentally different from owning a static index and hoping the environment remains favorable.

The S&P 500 remains an important component of many portfolios. It has been a powerful driver of wealth creation and will likely continue to play a central role in long-term investing. Prudence comes from recognizing that it is not sufficient on its own for investors seeking an optimized, durable strategy.

For those with substantial assets and access to professional oversight, broader diversification across market caps and geographies, combined with thoughtful portfolio management, has historically led to stronger outcomes and greater resilience when markets turn unfavorable.

Investing is not about finding a single holding that works in all circumstances. It is about constructing a portfolio that reflects how markets actually behave over time and how real people experience risk as they approach the moments that matter most. 

Jack Strulowitz is a Financial Advisor at Bernath & Rosenberg in Cedarhurst, NY, where he helps high–net worth individuals and families manage their investments and build comprehensive strategies for retirement, tax, and estate planning. For questions or to schedule a consultation, please contact [email protected] or 847-962-3352.

This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. Asset allocation does not ensure a profit or protect against a loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC