[does some cursory research on "SPY" to confirm understanding] By buying an Exchange Traded Fund linked to the S&P 500, you're getting diversification. If the S&P 500 has a good day, you have a good day. If the S&P 500 has a bad day, you have a bad day. But because, over time, it will have more good days than bad days (and "over time" I mean letting money set for 12 years-ish--enough to ride out a bear market) and because, with Dollar Cost Averaging, you're buying more shares on the "bad days" and less on the "good days," you should do quite well with it.
The way the S&P 500 works is, it has a "basket" of stocks. Say that it had Sears as an index stock back in 2005. Or Circuit City. When Sears or Circuit City started falling on tough times, it would've been dropped from the S&P 500 and they'd pick a new index stock, say Amazon or Tesla. And SPY would sell of its shares of Sears to buy Amazon shares. And your shares of SPY would get you those percentages. That's the beauty of buying an index fund. You get your diversification without having to do the work yourself. Or pay someone who probably isn't as smart as Warren Buffet to try top pick winners. When I was young I tried doing it myself. I thought McDonald's and Pepsi were good bets because even in bad times people eat junk food. I thought Zenith was good because it was the last American TV company. I got shares of Carolco Pictures for various reasons. It wasn't a very good way to diversify. If I'd just wrote a check for $X every X days to my Vanguard mutual fund, I'd have done far better than I did in my early investing days. But that wasn't as sexy to my 20something brain. Investing isn't sexy. It's a machine. Build a good money machine, plug it in, and let it run.
It can be scary. I had money in the stock market on Black Monday in 1987. Don't have the exact numbers handy, but in 1982 the NYSE was at 776 and by 1987 it had got up to 2722. Then in October it crashed to around 1730 in a day. I thought I was doomed. Wanted to sell and cut my losses. Didn't. Of course today the NYSE is at 33,213. No, that's not a typo. And I'm not comparing apples to oranges. Between 1982 and 2022, the Dow went from 776 to 33,213. Someone else can do the math, but if you buy and hold, I'd say that's a pretty nice little return on your investment. Just don't freak out and sell during a slump. Yes, that's easier said than done. My Darden restaurant shares didn't slump that badly or that long during the 'rona. And I was pretty sure they'd recover (that's the risk of individual stocks as opposed to funds. A fund will almost never fail, there was a chance that Darden Restaurants would go under during the 'rona) but it was still rough, watching the stock go down every month. And buying more shares every month. But now those fire-sale shares are worth lots more than I paid for them. YMMV.
