S&P500: Buy the dips strategy!

At the start of the year it is worth looking at one of the major indexes to see how it performs on a year over year basis. The S&P500 is the 500 leading companies in the US listed on stock exchanges. It is one of the most commonly followed equity indices. The 10 largest companies of the index account for 26% of the market capitalisation. The 10 largest companies in the index in order of weighting are Apple, Microsoft, Amazon, Facebook, Alphabet, Berkshire Hathaway, Johnson & Johnson, JP Morgan Chase & Co and Visa. Here are some of the key statistics.

If you had bought the S&P500 every year at the start of the year and sold it on December 31 you would have recorded the following results:

  • +72% winning trades
  • +7.44% average return
  • Maximum profit of +44% in 1954
  • Maximum loss of -37.58% in 2008
  • Annualised return of +7.48%

So, as the year starts off you can see why the S&P500 is often bought on dips lower. If you scan over a chart over the last 70 years you can see that dip buying has been a constant method of success in the index for that period of time.