I have some cash of 50K that I am looking to invest. Can someone clarify if it is a good strategy to buy S&P 500 index fund. I do not have any short term needs with that money.
Looking at the historical values in google finance, someone who invested in S&P 500 at market peaks (in 2000 and 2007) will barely break even today. It is probably wrong to assume that history will repeat. But I am just curious what was the best investment one could have made during the previous market peaks.
There are three tools that are available to an investor as noted in David Swensen's, Yale University CIO, excellent book "Unconventional Success":
1) Asset allocation
2) Market timing
3) Security selection
He has noted research that details Asset Allocation may be responsible for 90% up to 110% of returns. 110%? How could that be? His lecture noted that #2 and #3 may produce negative results against #1.
You question is one of market timing (i.e. now) and security selection (i.e. Index 500 fund only).
Construct a portfolio, set the asset allocation, and then stay the course.
Once the portfolio is constructed, you and put the entire amount to work at once (i.e. as a Vanguard study recommends) or dollar cost average (DCA) over a period of time that you are comfortable with.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!"
Disclosure: Three Fund Portfolio + REITs