A common theme among advice for new long-term investors is to ignore investments such as actively managed funds, be wary of financial advisers and the products they sell, and instead to just put most of your money in a low-fee index fund that tracks the S&P 500 and leave it there.
Why is this advice so frequently given? I think some of the reasons include:
- Historically, it has been very stable and nearly impossible to reliably beat over the long term
- The risk is low, partly because it includes a wide variety of stocks
- It protects new investors from making common mistakes such as paying high fees or overreacting to short-term fluctuations
How much of this applies outside of the US, though? In my particular case, I'm an EU citizen mostly living in Germany. I've found what appear to be similarly-structured funds composed of European stocks (e.g. the FTSEurofirst 300 Index), but I'm not sure whether the reasons for investing in an S&P fund still apply to a fund like this. Is there something special about the S&P 500 itself—maybe historically US companies have just performed better?
How does the standard advice change when living outside of the US? Does it still make sense to invest in the S&P 500 as a foreigner, or are local equivalents better? What considerations (taxes?) are there?