1) Because Warren Buffett Says So!
"The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."
2) Because Indexs are Low Cost and Unit Trusts are High Cost
"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."
If you purchase the STI ETF you are only paying 0.30 of a percent each year as compared to 1-3% for Unit Trusts.
3) Even Warren Buffett Himself Has a Hard Time Beating the Index
4) The Index Provides a Decent Return
Over the period from 1965 to 2013 the S&P gave investors an average annual returns of about 9.8%, that's great! Looking at our local STI ETF, it gave about 7.89% annual returns since 2002 which is pretty decent too.
5) The STI is Cheaper than the S&P 500
The STI is only selling for 13 times earnings, which is cheaper than the S&P which is selling for over 17 times earnings. The dividend yield is getting close to 3% which is also higher than S&P's 2% yield.
6) Because its Easy to Invest in the Index
You don't have to spend a lot of time analyzing the business nor the economics, the time saved can be well spent doing the things you love.
Over the last 5 year the S&P 500 gained over 170%, that's about 25% compounded returns.
When will this bull end? I really don't know. But as long as the music keeps playing, we dance.
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