What's the best way for a 20 year old to invest $5,000?

I would like to invest $5,000. If invested, I would plan not to touch that money until age 35. I want to put the money away and sort of "forget" about it while I go through the next 15 years of my life. I would like to have all profits reinvested during that time. I am considering the S&P 500. Is this my best option?

Financial Planning, Investing, Starting Out
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You are absolutely correct in considering a well established, highly diversified equity investment as a great way of investing for fifteen years and have it on auto pilot. The strategy is low cost if you choose a very low cost index fund and have all dividends reinvested.

What you should focus on is how broad an index you want to choose. Generally, the broader the better since you want to set it and forget for fifteen years.  The S&P 500 is focused on U.S. registered large, publicly traded companies. It represents about 70% of the U.S. public equity market and the U.S. market represents a little over half of the world equity markets. So, if you really want to be as broadly diversified as possible, you may choose a global equity index fund. A well established global equity index is the MSCI All Country World Index, abbreviated as ACWI. Investing globally means you will be exposed to a wider array of markets and will have exposure to foreign currencies. That may sound risky, but over time, currencies fluctuate in relationship with each other and generally adjust.

An "in between" level of diversification is to stay in the U.S. market, but expand beyond just the largest companies to include small and medium sized companies in the remaining 30% of the U.S. market.  A well established index for the entire U.S. market is the Russell 3000.

If you just look at recent past performance, the S&P 500 index will have outperformed the more diversified solutions discussed above. That will not always be the case and certainly it is likely that over a fifteen year period, smaller companies will outgrow larger ones and the U.S. will not always be the top performing market.

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