Why the S&P 500 is the Best (And Worst) Thing to Ever Happen to Investors

Greetings,

June’s pre-order incentive for my book Real Wealth is now live. Pre-order this month, tell me you did at tylergardner.com/book, and I’ll send you a three-part exclusive podcast series—the unfiltered version of my own financial story that didn’t make it into the book. The mistakes, the pivots, the moments that actually shaped how I think about money. Delivered digitally in early July. Pre-order now and you’re also locked in for every monthly incentive through the December 1st release.

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Why the S&P 500 is the Best (And Worst) Thing to Ever Happen to Investors

1. The index was never meant to be a scoreboard. So stop treating it like one. When Bogle launched the first index fund in 1975, he wasn’t handing investors a scoreboard. He was handing them a compass. The S&P 500 was built to answer one question: “what is the market doing?”

But humans are, alas, humans. Give us a number and within ten minutes we will find a way to turn it into a competition. We are a nation that has managed to make youth soccer—a sport played by six-year-olds mostly running in the wrong direction—into a full-time parental occupation involving travel teams, a Rolodex of Division I coaches who will never call you back, and at least one family that has flown to Argentina for a tournament involving children who still believe in the tooth fairy. We are constitutionally incapable of encountering a measurable thing without immediately asking who is winning.

It was inevitable we would apply this same competitive spirit to investing. The only problem is most of us are competing against the wrong thing.

2. Stop comparing your diversified portfolio to the S&P 500. It’s like entering your bloodhound in a greyhound race and being shocked when she abandons the track entirely right out of the gates to follow the scent of a child’s nachos twelve rows up. The S&P 500 is 100% equities, 100% large and mega-cap, and 100% domestic. Zero cash. Zero bonds. Zero international exposure. Zero asset class diversification of any kind. It was built to measure one slice of one market in one country. That benchmark was never designed to be your benchmark, so perhaps before calling your financial advisor to demand they beat it, confirm that you are not currently holding 30% in something called a coin and 55% in cash “just in case.”

3. Every number the S&P 500 gives you is incomplete. The only question that matters is: compared to what? When someone tells you the S&P fell 2% today, that sentence is missing its second (and far more important) half. The number is not the story; the timeframe is the story. And the timeframe is almost always chosen to produce the most alarming possible version of events.

This also explains the high water mark problem. Your portfolio hits an all-time high. Then it pulls back 5%. Now you’re not thinking about your actual return. You’re thinking about the gap. That gap becomes the new psychological floor. The number feels catastrophic because you’re measuring it against the peak, not against where you started, not against the year, not against anything that actually matters.

That 2% day everyone panicked and posted about? The S&P was still up 15% for the year. Nobody led with that sentence. They never do.

When in doubt, zoom out.

4. On the dangers of real-time information. In Faulkner’s The Sound and the Fury, Jason Compson pays his broker ten dollars a month for up-to-the-minute cotton futures prices. It is, by some distance, the worst financial decision in the novel. He checks obsessively. He speculates recklessly. He makes catastrophic trades based on noise he has mistaken for signal. He ends up ruined, furious, and alone in a car outside a market he can no longer afford to be in.

Faulkner wrote this in 1928. And surprise, he was somewhat ahead of his time.

We now live in Jason Compson’s world, except the real-time updates are free: they live in your pocket, and you can check them at 2am from a gas station in rural Ohio. Some of you do. But the research is unambiguous: the more frequently investors check their portfolios the worse their returns. Not because checking changes the market. But because checking changes the investor. Every red day becomes a threat. Every green day becomes an expectation your nervous system will punish you for losing.

Jason Compson paid ten dollars a month for the privilege of being driven slowly insane by information he could not act on wisely. You are doing it for free.

The most underrated financial tool available to you right now is closing the app.

5. The market is not a financial instrument. It is a daily referendum on collective human fear and greed. The S&P 500 on any given day is not telling you what American businesses are worth. It is telling you what millions of humans—reacting to headlines, narratives, and each other—are willing to pay for them at that moment. Buffett called it a voting machine in the short run and a weighing machine in the long run.

The voting machine runs twenty-four hours a day and has a Reddit forum and an algorithm designed to show you the most devastating version of whatever just happened. When you obsess over your benchmark you are letting the voting machine run your financial life. You’re letting the collective fear of others run your financial life. But the weighing machine? Yeah, it doesn’t care what the S&P did today.

Neither should you.

And if you want the full version, this week’s episode of Your Money Guide on the Side goes deeper on Bogle, the benchmark trap, and the summer I spent trying to outsmart the market with a subscription service whose name I am still too embarrassed to say in polite company. If you find the show useful, a review helps more than you’d think—it’s how new listeners find the show, and how I know the topics I find fascinating aren’t just fascinating to me and the hounds.

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Two Things I’m Currently Thinking About

1. The 1st Annual Ty-Athalon. There was a half marathon downtown last weekend—downtown being, for those unfamiliar with Vermont geography, also uptown, midtown, and the outskirts. I did not run it. Instead I completed what I am formally naming the Ty-Athalon: thirty minutes on the Peloton with Olivia Amato, seventy lengths in the pool with flippers on, and a one-hour walk through the woods. (The flippers are non-negotiable, as my fifth grade swim instructor once assessed my aquatic abilities with clinical precision and labeled me, without apparent remorse, a “sinker.” Some truths are permanent.)

At first I was disappointed. The specific grief of someone negotiating between what their body used to be capable of and what it currently is. Two titanium hips by 43 will do that. But then I remembered Murakami. In What I Talk About When I Talk About Running, he describes reaching a point where runners began passing him on the trails and finding, to his own surprise, a kind of peace in it. His goal, distilled to its simplest form: just don’t stop.

I didn’t stop. In flippers, on a Peloton, or walking (quite slowly) through the Vermont woods.

And that was enough. It was a great day.

2. The Dignity of Playing Your Part. After last week’s Ishiguro deep dive I rewatched Downton Abbey, season one and found myself completely undone by Molesley—a footman and valet who takes his role with a seriousness our central character, Matthew Crawley, finds faintly comic. Crawley keeps waving him off—I can do it myself, thank you—and we are, perhaps, meant to laugh along.

But I couldn’t laugh. And ultimately, neither can Crawley. Because Molesley is just trying to play his part. With everything he has.

Shakespeare told us the world is a stage and we are merely players. What he didn’t say, but what Molesley understood instinctively, is that there is no such thing as a small part. There is only whether you play yours with full commitment or phone it in and hope nobody notices.

Don’t phone it in. And don’t laugh at someone else who isn’t.

And Before You Go…

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As always, hope this gives you something to think about throughout the week ahead.

—Tyler