Is it a good idea to put everything in the S&P500?
At a very high-level, the answer is yes, that's a good idea. For money that you want to invest on the scale of decades, putting money into a broad, market-based fund has historically given the best returns. Something like the Vanguard S&P 500 automatically gives you a diverse portfolio, with super low expenses. As it sounds like you understand, the near-term returns are volatile, and if you really think you might want this money in the next few years, then the stock market might not be the best choice. As a final note, as one of the comments mentioned, it makes sense to hold a broad, market-based fund for your IRA as well, if possible. What you choose to invest in depends largely on your own goals and time horizon.  You state that your time horizon is a few decades. Most studies have shown that the equity market as a whole has outperformed most other asset types (except perhaps property in some cases) over the long term.  The reason that time horizon is important is that equities are quite volatile. Who knows whether your value will halve in the next year? But we hope that over the longer term, things come out in the wash, and tomorrow's market crash will recover, etc.  However, you must realize that if your goals change, and you suddenly need your money after 2 years, it might be worth less in two years than you expect.
"I read the book, and I'm willing to believe you'd have a good chance of beating the market with this strategy - it is a reasonable, rational, and mechanical investment discipline. I doubt it's overplayed and overused to the point that it won't ever work again. But only IF you stick to it, and doing so would be very hard (behaviorally). Which is probably why it isn't overplayed and overused already. This strategy makes you place trades in companies you often won't have heard of, with volatile prices. The best way to use the strategy would be to try to get it automated somehow and avoid looking at the individual stocks, I bet, to take your behavior out of it. There may well be some risk factors in this strategy that you don't have in an S&P 500 fund, and those could explain some of the higher returns; for example, a basket of sketchier companies could be more vulnerable to economic events. The strategy won't beat the market every year, either, so that can test your behavior. Strategies tend to work and then stop working (as the book even mentions). This is related to  whether other investors are piling in to the strategy and pushing up prices, in part.  But also, outside events can just happen to line up poorly for a given strategy; for example a bunch of the ""fundamental index"" ETFs that looked at dividend yield launched right before all the high-dividend financials cratered. Investing in high-dividend stocks probably is and was a reasonable strategy in general, but it wasn't a great strategy for a couple years there. Anytime you don't buy the whole market, you risk both positive and negative deviations from it. Here's maybe a bigger-picture point, though. I happen to think ""beating the market"" is a big old distraction for individual investors; what you really want is predictable, adequate returns, who cares if the market returns 20% as long as your returns are adequate, and who cares if you beat the market by 5% if the market cratered 40%. So I'm not a huge fan of investment books that are structured around the topic of beating the market. Whether it's index fund advocates saying ""you can't beat the market so buy the index"" or Greenblatt saying ""here's how to beat the market with this strategy,"" it's still all about beating the market. And to me, beating the market is just irrelevant. Nobody ever bought their food in retirement because they did or did not beat the market. To me, beating the market is a game for the kind of actively-managed mutual fund that has a 90%-plus R-squared correlation with the index; often called an ""index hugger,"" these funds are just trying to eke out a little bit better result than the market, and often get a little bit worse result, and overall are a lot of effort with no purpose. Just get the index fund rather than these. If you're getting active management involved, I'd rather see a big deviation from the index, and I'd like that deviation to be related to risk control: hedging, or pulling back to cash when valuations get rich, or avoiding companies without a ""moat"" and margin of safety, or whatever kind of risk control, but something. In a fund like this, you aren't trying to beat the market, you're trying to increase the chances of adequate returns - you're optimizing for predictability. I'm not sure the magic formula is the best way to do that, focused as it is on beating the market rather than on risk control. Sorry for the extra digression but I hope I answered the question a bit, too. ;-)" You are correct that over a short term there is no guarantee that one index will out perform another index. Every index goes through periods of feat and famine. That uis why the advice is to diversify your investments. Every index does have some small amount of management. For the parent index (the S&P 500 in this case) there is a process to divide all 500 stocks into growth and value, pure growth and pure value. This rebalancing of the 500 stocks occurs once a year. Rebalancing The S&P Style indices are rebalanced once a year in December. The   December rebalancing helps set the broad universe and benchmark for   active managers on an annual cycle consistent with active manager   performance evaluation cycles. The rebalancing date is the third   Friday of December, which coincides with the December quarterly share   changes for the S&P Composite 1500.  Style Scores,   market-capitalization weights, growth and value midpoint averages, and   the Pure Weight Factors (PWFs), where applicable across the various   Style indices, are reset only once a year at the December rebalancing. Other changes to the U.S. Style indices are made on an as-needed   basis, following the guidelines of the parent index. Changes in   response to corporate actions and market developments can be made at   any time. Constituent changes are typically announced for the parent   index two-to-five days before they are scheduled to be implemented. Please refer to the S&P U.S. Indices Methodology document for   information on standard index maintenance for the S&P 500, the S&P   MidCap 400,the S&P SmallCap 600 and all related indices. As to which is better: 500, growth,value or growth and value? That depends on what you the investor is trying to do. I'm a believer in broad index funds for the vast majority of investors. However, I'm sure someone here is more qualified than me to speak to the correct allocation.   I'm mostly pointing out low-hanging fruit: you should (almost) never invest in the company that pays your wages. You could just dump it in the S&amp;P or some broad market index and be in a better position. The S&P500 is an index, not an investment by itself.  The index lists a large number of stocks, and the value of the index is the price of all the stocks added together. If you want to make an investment that tracks the S&P500, you could buy some shares of each stock in the index, in the same proportions as the index.  This, however, is impractical for just about everyone. Index mutual funds provide an easy way to make this investment.  SPY is an ETF (exchange-traded mutual fund) that does the same thing. An index CFD (contract for difference) is not the same as an index mutual fund.  There are a number of differences between investing in a security fund and investing in a CFD, and CFDs are not available everywhere. I tried direct indexing the S&amp;P500 myself and it was a lot of work. Lots of buys and sells to rebalance, tons of time in spreadsheets running calculations/monitoring etc, dealing with stocks being added or removed from the index, adding money (inflows). Etc. All of the work is the main reason I stopped. I came to realize the 0.05% I pay Vanguard is a great deal. I hate to point to Wikipedia as an answer, but it does describe exactly what you are looking for... The S&P 500 is a free-float   capitalization-weighted index   published since 1957 of the prices of   500 large-cap common stocks actively   traded in the United States. The   stocks included in the S&P 500 are   those of large publicly held companies   that trade on either of the two   largest American stock market   exchanges; the New York Stock Exchange   and the NASDAQ. The components of the S&P 500 are   selected by committee... The committee   selects the companies in the S&P 500   so they are representative of the   industries in the United States   economy. In addition, companies that   do not trade publicly (such as those   that are privately or mutually held)   and stocks that do not have sufficient   liquidity are not in the index. The S&P is a capitalization weighted index.  If a stock price goes up, then it comprises more of the total index.  If a stock goes down, it comprises less, and if it goes down too much, the committee will likely replace it. So to answer your question, if one stock were to suddenly skyrocket, nothing would happen beyond the fact that the index was now worth more and that particular stock would now make up a larger percentage of the S&P 500 index. I do the same thing with my 401k (100% S&P 500). My strategy is to check it weekly.  If the S&P falls by 10%-20% (based on risk tolerance, currently mine is 19%). I'll move all of it out into cash until I see 3-consecutive months of gains, then I'll get back in. I don't have a lot of time to manage my investments, and this was the simplest strategy I've come up with so far.  It served me very well in the 2008 crash. I got out around 120 and returned to the S&P on 2009-06-29 around 90. Yes, it's a risk. To put it in perspective, If we look at the data for S&P returns since 1871, we get a CAGR of 10.72%. But, that comes with a SDev (Standard deviation) of 18.67%. This results in 53 of the 146 years returning less than 4%.  Now if we repeat the exercise over rolling 8 year periods, the CAGR drops to 9.22%, but the SDev drops to 5.74%. This results in just 31 of the 139 periods returning less than 4%. On the flip side, 26 periods had an 8 year return of over 15% CAGR.  From the anti-DS article you linked, I see that you like a good analogy. For me, the returns of the S&P over the long term are like going to Vegas, and finding that after you run the math of their craps (dice rolling game) you find the expected return is 10%. You can still lose on a given roll. But over a series of a larger number of rolls, you're far ahead.  To D Stanley - I agree that returns are not quite normal, but they are not so far off. Of the 139 rolling returns, we'd expect about 68% or 95 results to be 1 SDev away. We get 88 returns +/-1SDev. 2 SDevs? We'd expect only 5% to lie outside this range, and in fact, I only get one result on the low side and 4 on the high side, 5 results vs the 7 total we'd expect. The results are a bit better (more profitable) than the Normal Bell Curve fit would suggest. In addition to evaluating the business (great answer), consider the potential payoff. If bonds pay off in the 5-10% range, the S&P500 has averged 10.5%. You should be expecting a payoff of 15-20% to invest in something riskier than the stock market.  That means that if you invest $10k, then in 5 years you'll need to get out $25K (20% returns over 5 years).   If you get less than this much in 5 years, the risk-to-reward ratio probably rules this out as a good investment. Stock index funds are likely, but not certainly, to be a good long-term investment.  In countries other than the USA, there have been 30+ year periods where stocks either underperformed compared to bonds, or even lost value in absolute terms.  This suggests that it may be an overgeneralization to assume that they always do well in the long term.  Furthermore, it may suggest that they are persistently overvalued for the risk, and perhaps due for a long-term correction.  (If everybody assumes they're safe, the equity risk premium is likely to be eaten up.) Putting all of your money into them would, for most people, be taking an unnecessary risk.  You should cover some other asset classes too.  If stocks do very well, a portfolio with some allocation to more stable assets will still do fairly well.  If they crash, a portfolio with less risky assets will have a better chance of being at least adequate. Unless and until you are ready to do the ground work and get your hands dirty in the market, it is better to let the money where it is. But how to distribute money in which asset classes, industry etc is your choice to make. But remember that a big investment company doesn't guarantee that you will always earn a return higher than the market or it is safe with them. They are also bound to make mistakes and go bust, but it would be quite rare for companies, with billions of assets because they have strict checks in place and invest with extreme caution and proper research. One option is to try dabbling in the markets yourself, slowly, not everything at once. You will learn a lot and there are loads of information on the net and books in stores which could get you started. You will need to do a lot of groundwork to beat the market. That is difficult but not impossible. People have done it time and time again and they have put in hard work to do so. And I don't see with a little bit of work and time, why you shouldn't be able to do that, unless and until you are lazy and don't intend to do it. This is the exactly wrong thing to do especially in the age of algorithmic trading.  Consider this event from 2010:  Chart Source  Another similar event occurred in 2015 and there was also a currency flash crash in that year. As you can see the S&P 500 (and basically the entire market) dropped nearly 7% in a matter of minutes.  It regained most of that value within 15 minutes. If you are tempted to think that 7% isn't that big of a deal, you need to understand that specific securities will have a much bigger drop during such events.  For example the PowerShares S&P 500 Low Volatility ETF (SPLV) was down 45% at one point on Aug 24, 2015 but closed less than 6% down. Consider what effect a stop loss order would have on your portfolio in that circumstance.  You would not be able to react fast enough to buy at the bottom.  The advantage of long-term investing is that you are immune to such aberrations. Additionally, as asked by others, what do you do once you've pulled out your money.  Do you wait for a big jump in the market and hop back in?  The risk here is that you are on the sidelines for the gains.  By missing out on just a small number of big days, you can really hurt your long-term returns. I would read any and all of the John Bogle books.  Essentially:  We know the market will rise and fall.  We just don't know when specifically.   For the most part it is impossible to time the market. He would advocate an asset allocation approach to investing.  So much to bonds, tbills, S&P500 index, NASDAQ index.  In your case you could start out with 10% of your portfolio each in S&P500 and NASDAQ.  Had you done that, you would have achieved growth of 17% and 27% respectively.  The growth on either one of those funds would have probably dwarfed the growth on the entire rest of your portfolio.  BTW 2013 and 2014 were also very good years, with 2015 being mostly flat. In the past you have avoided risk in the market to achieve the detrimental effects of inflation and stagnant money.  Don't make the same mistakes going forward. You've thought it through and you know the risks, so more power to you. I'd only add that recovering from big downdrafts gets harder as you age, and you're also depending on the S&amp;P 500's pretty impressive history to repeat. To me the 6%-9% long-run historical range of S&amp;P 500 returns doesn't match up well with the new era of weaker, 2%-ish economic growth since the early 2000s. Insofar as growth is driven by secular trends such as worsening demographics and fewer productivity advances, you're depending on other factors (globalization driving earnings power, central banks continuing to distort asset prices indefinitely, etc.) to get to that long-run 6%-9%. If the S&amp;P enters a leaner couple of decades, it will be much harder to recover from losses. One year is short term -- short enough that trying to predict returns is a crap shoot. Frankly, if you will need the money in one year I wouldn't touch anything riskier than a money market account. $5000 also isn't enough to give you much flexibility in achieving a balanced portfolio, since the minimal initial purchase for mutual funds is often around $2500. (I'm not sure whether ETFs would give you any more flexibility.) So on grounds of both size and time horizon, I have to recommend against this plan. The risk of losing money, with insufficient time for gains to balance that risk, is simply too high. Others may feel differently, of course. But that's the best advice I can offer.