Which is the better buy, the S&P 500 or the FTSE 100?

Over the past one, 5, and 10 years, the US S&P 500 index has thrashed the UK’s FTSE 100. So why don’t I just ‘bet the farm’ on US stocks?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young female analyst working at her desk in the office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Often, it seems that building a portfolio is as much of an art as a science. That’s because predicting the future is inherently problematic, due to complexity and uncertainty. For example, I have no idea whether, say, the S&P 500 index will outperform high-quality bonds in 2024.

What’s more, having a high IQ and/or vast experience is no guarantee of success when choosing and managing financial assets. As my guru Warren Buffett has remarked, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing”.

Value versus growth investing

What’s more, many investors tend to find themselves adopting one of two styles. Growth investors prefer to buy stocks in fast-growing businesses, often in the tech sector. Meanwhile, value/dividend/income investors prefer to part-own solid, established, and undervalued companies.

Should you invest £1,000 in M&G right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if M&G made the list?

See the 6 stocks

I fall into the latter camp. Of 29 individual stocks in our family portfolio, I would describe only five as being outright growth stocks. The other 24 shares we own for their value qualities — or for dividend income.

Furthermore, within this pot of shareholdings, only seven are US stocks, with the remaining 22 being UK shares. In other words, this particular collection of assets is heavily weighted towards UK value. But is this right for me and my family?

S&P 500 versus FTSE 100

For me, easily the biggest problem with investing is what I’d describe as ‘calling the trends’.

For example, following the UK’s Brexit vote in mid-2016, I correctly forecast that the S&P 500 would beat the FTSE 100. From 1 July 2016, the Footsie has gained 12.5%, while the main US index has leapt by 101.6%. Correctly predicting this outcome has made my family much better off.

Likewise, over the past five years, the UK’s main market index is up 6.7%, while its American counterpart has jumped by 59.5%. Over one year, these gains are 6.2% and 15.9%, respectively. Therefore, surely this should be a no-brainer?

Shouldn’t I just put 100% of our wealth into US stocks and ride the wave of America’s corporate success? Alas, it’s not as simple as that, because pretty much all trends eventually end. In addition, all the above figures exclude cash dividends, which are far higher from London-listed companies.

Adding ballast and balance

Over four decades, I’ve come to understand what we need from our portfolio of assets. I’d prefer not to manage an asset base that shoots out the lights every so often, but is wildly volatile. Instead, I’d prefer a well-balanced pot, containing both growth and value shares and funds. This adds balance and ballast, thus reducing portfolio instability.

Now I’ll cut to the chase. Which would I buy today? The FTSE 100, offering an earnings yield of 9.2% and a dividend yield of 4% a year? Or the S&P 500, with figures of 4.8% and 1.6%, respectively?

Predictably, my answer is to sit on the fence. My current plan is to continue to add cheap FTSE 100 shares to our portfolio, simply as a value play. Meanwhile, our regular savings will continue to invest in US-heavy global trackers. For me, this offers the best of both worlds — value and growth!

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »