Is investing 100% of my portfolio in an S&P 500 index fund a good idea?
While it's really ideal to diversify more in ways similar to what Mohammad Sajad suggested, in general...there are situations where I think it's best to invest 100% in, say, SPY, which is an equal weight S&P-following ETF. The most ideal time to do this for a Buy & Hold (B&H) type investor is right at the end of a recession. Doing this would ensure you'll get in at a nearly rock bottom price, therefore the natural upward trajectory of the S&P during years of recovery and economic expansion will pay off for you in the years where growth is most explosive and generally less volatile.Another reason why such a tactic might be very beneficial is if you're a newer investor who has very little to invest with - especially if you can do it under conditions specified in the previous paragraph. When you have little capital to work with at first, the costs associated with investments will actually be very profit prohibitive for you. Considering SPY's very low 0.09% expense ratio, having a 100% position in SPY during any bull market year won't hurt you, regardless of whether you're a B&H investor or a high frequency trader (HFT) who moves in and out with each short term volatility cycle. The problem is, you will lose a large amount of your investment if you don't understand macroeconomics sufficiently to know how and when a bear market reversal is likely, AND if you buy in near the very end of a bull market. When the housing market bubble burst in October 2007, the S&P had peaked around the 1576 level. It wasn't until May 2013 when the S&P got back up to that level and stayed above it. If you'd have bought just before the bubble burst, it would have taken you nearly 6 years for you to get your initial investment back, assuming you were to stay in it the entire time. That's a HORRIBLE return on investment. While there are obviously some risks involved, some investors might really not be in the best position to make diversification (even within stocks specifically) a cost-effective investment. An index ETF like SPY can allow you to diversify your money across 500 different companies for a much smaller cost. However, I'd still strongly recommend you read anything you can find on macroeconomics and learn what causes lead to what effects first still, so you'll have a better idea of whether your money should go into SPY or into a bear ETF like SH or similar. Even then, I'd still recommend you pull profits off that plate when you're able to, and move it to another plate.