Why can't I just invest in the S&P 500?

Exploring the S&P 500 and risk-adjusted returns.

The S&P 500 is an incredible index. It’s packed with some of the most valuable companies in the world - Apple, Microsoft, NVIDIA - and it’s grown steadily over the decades. It’s simple, low-cost, and has consistently delivered strong returns. So logically the question I get most from investors is “why not just put all your money in the S&P 500 and call it a day?”

Well, the answer depends on what you’re investing for, how long you’re investing, and how much risk you can handle. The S&P 500 is a powerful tool, but like any tool, it works best when used the right way.

But before we talk about why it might not always be the perfect fit, let’s take a moment to appreciate why it’s so great.

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Why beating the S&P 500 is so hard

Marc Rowan, CEO of Apollo Global Management, put it best when he said: “How have active managers done? Well, basically 90 plus percent of the time for the past 20 years, they have failed to beat the index. Did they get stupider? No. The structure of our market has changed. It doesn't mean bad, it just means indexed and correlated. And so an investor, particularly an international investor who wants to express an opinion in the US no longer comes in and buys a basket of securities. They buy the index.” [4:47 in the video above]

That’s what makes the S&P 500 so special. It’s tough to beat. Even the most experienced wealth managers with all the resources in the world often struggle to deliver better returns without taking on more risk.

It’s no wonder the S&P 500 has become a go-to for many investors. Its simplicity and consistent growth make it a hard act to follow. Over the long run, it has outperformed most actively managed funds, and on a risk-adjusted basis, it’s one of the most efficient tools out there for building wealth.

But it’s not always the right tool for every situation.

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Why it shouldn’t be 100% of your portfolio

The S&P 500 is great, but depending on your goals, it might not give you everything you need.

1. Different goals, different strategies
Imagine you’re saving for your child’s education. When the goal is 15 years away, you might start with a portfolio heavily invested in equities like the S&P 500. But as college gets closer, sticking with all stocks becomes risky. You’d want to gradually shift toward more stable investments like bonds to protect what you’ve built.

2. Diversification matters
The S&P 500 only covers large U.S. companies. It leaves out international stocks, bonds, real estate, and other asset classes that help reduce risk and smooth out returns over time. A well-diversified portfolio across asset classes and geographies can perform better in different market conditions.

3. Markets aren’t always predictable
The S&P 500 has had long stretches of growth—but also periods of decline. If you’re investing for retirement or a short-term goal, riding out a downturn may not be an option. Adjusting your strategy to balance growth and protection is key.

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A full toolbox for building wealth

At Paasa, we’re big fans of the S&P 500, but we go beyond it. Our portfolios fit different goals, time horizons, and hence risk profiles.

We mix passive strategies (like the S&P 500) with rebalances when needed. We diversify across multiple asset classes and use mean-variance optimization, based on Modern Portfolio Theory, to aim for the best balance of risk and reward. And as your life and market conditions change, we adjust your portfolio to keep it on track. This is the exact strategies that companies like Vanguard, Schwab, and Wealthfront use for their HNI clients in the U.S.

Think of the S&P 500 as a hammer—it’s great for certain jobs, but it’s not the only tool you need. We give you the full toolbox.

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The bottom line

The S&P 500 is an incredible starting point. But building sustainable wealth takes more than one index. Your portfolio should reflect you—your goals, your time frame, your tolerance for risk.

We believe smart investing is about creating a plan that grows with you, balancing long-term growth with preservation along the way.