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📊 ETFs & Index Funds · Lesson 3 of 10 · 8 min

The S&P 500 — America's Default Bet

🇺🇸 $10,000 in the S&P 500 in 1990 is over $300,000 today — with zero stock-picking, zero genius, and basically zero effort. It's the most boring bet in finance, and it has quietly humbled almost everyone who tried to beat it.

💡 Key idea

The S&P 500 is the default 'I don't know what to pick' answer in investing — and it usually beats picking.

🧠 Why it matters

The S&P 500 is the 500 largest US companies. Apple, Microsoft, Amazon — all of it. Buy ONE fund (like VOO or SPY) and own a slice of every major American business.

🌍 In the real world

🎯 In 2007, Warren Buffett bet $1 million that an S&P 500 index fund would beat 5 hand-picked hedge funds over 10 years. He won. By a LOT. The hedge funds returned 36%. The index returned 126%.

📌 Takeaways

  • 500 biggest US companies
  • Historic ~10% avg annual return
  • VOO, SPY, IVV all track it
📈Try it: Compound interest calculator →

📖 Terms in this lesson

Index fund: A fund that simply owns everything in a market index, like the S&P 500, at a very low cost.

S&P 500: An index of 500 of the biggest US companies; the usual yardstick for the stock market.

✅ Test yourself

What does the S&P 500 track?
  1. 500 random companies
  2. The 500 largest US public companies
  3. 500 cryptocurrencies
  4. 500 banks

Answer: B · The 500 largest US public companies

The S&P 500 is a market-weighted index of the 500 largest US public companies, picked by S&P Dow Jones Indices.

Average annual return of S&P 500 historically?
  1. ~3%
  2. ~10%
  3. ~25%
  4. ~50%

Answer: B · ~10%

Long-term, the S&P 500 has averaged about 10% per year (before inflation). Some years much higher, some negative, but the trend wins.

Why does Buffett recommend the S&P 500 over picking stocks?
  1. It's exciting
  2. Most professional pickers can't beat it long-term
  3. It always goes up
  4. It pays dividends only

Answer: B · Most professional pickers can't beat it long-term

Over 10+ years, ~85% of active fund managers UNDERPERFORM the S&P 500. After fees, the index wins more often than any pro.

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