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Since its inception in 1957, the S&P 500 — which comprises the 500 biggest US companies by market capitalisation — has provided strong returns while helping shareholders to effectively diversify their portfolios.
If someone had invested invested £30k 10 years ago, how much would they have now?
Strong returns
Since 9 December 2014, the S&P 500 has risen an impressive 196% in value. That equates to an average annual return of 11.4%.
But that’s not including dividends paid out during this time. With shareholder payouts included, the index’s average yearly return rises to an impressive 13.7%.
To put that into context, the average annual returns (including dividends) of the FTSE 100 and FTSE 250 sit way back, at just above and below 6%, respectively.
So how much would the S&P 500’s strong performance have delivered in cash terms? Had someone invested £30,000 in an S&P 500 index fund back in late 2014, they could now — with dividends reinvested — be sitting on a whopping £117,148.
Tech focus
The largest companies in the US index are tech companies, a sector that is not well represented in the UK. And I think these tech giants will continue to push the S&P 500 higher.
These businesses have soared in value amid investor buzz over the evolving digital landscape. More recently, market excitement over artificial intelligence (AI) — helped by strong trading updates from Nvidia, Alphabet, and Microsoft — have boosted demand for their shares.
But AI isn’t the only game in town. There’s a multitude of other tech growth segments that could lift the S&P over the long term, including:
• Cloud computing
• Green technology (including renewable energy and electric cars)
• Robotics
• Cybersecurity
• Quantum computing
• The Internet of Things (IoT)
• Autonomous vehicles
A top stock I’m considering
To capitalise on these themes myself, I’ve added a couple of US exchange-traded funds (ETFs) to my portfolio.
One is the broader HSBC S&P 500 ETF, giving me exposure to the whole index. The other is the iShares S&P 500 Information Technology Sector ETF, which gives me more targeted access to tech stocks.
With my quest for diversification achieved, I’m also looking to boost my returns by buying some individual shares. Dell Technologies (NYSE:DELL) is one US share I’m considering today.
Like Nvidia, the business is also betting big on the AI revolution. But so far it hasn’t enjoyed the same spectacular results, and so it doesn’t have the same sky-high valuation as its tech rival.
Dell’s forward price-to-earnings (P/E) ratio is 15.8 times. That’s pretty low compared to the broader tech sector and well below the Nvidia’s hulking ratio of 47.1 times.
It may not be achieving the same spectacular results as Nvidia just yet, but it has been making serious progress in AI.
Between September 2023 and June, it sold an impressive $3bn worth of AI servers. And it reached a significant milestone in November by selling Blackwell server racks, the first that use liquid cooling technology. This could be a game-changer in energy efficiency and server performance.
Although Dell faces substantial competition in the AI space, I believe it’s an attractive stock for me given its encouraging recent progress — and especially at current prices.
