Should I really put my entire $35,000 401k into the S&P 500 (VOO, SPY) until 2040?

Whenever someone comes into money or earns money, there has to be a decision on how to best allocate these funds. It doesn’t matter if you are young and just want to earn for decades or if you are close to retirement and want to maximize passive income, you have to do something. 

This is exactly where one Redditor’s mind is going, according to their post in r/personalfinance. With a $35,000 401(k) right now, they are trying to decide how best to move forward and whether this means putting all of it into the S&P 500 and just sitting back and watching it earn. 

Talk Them Out of This Move

At the very heart of this discussion around putting everything into the S&P 500, the Redditor has a target retirement date of 2050. On the plus side, they are looking to continue maximizing their account for the foreseeable future.” 

While they say they will likely make some shifts in how their portfolio is outlined by 2040, the focus is really on the here and now. What they have done is look at the fees across a bunch of indexes and have determined that trading in the S&P 500 is the lowest. 

Admittedly, neither they nor I is a financial expert, so there is no question that this Redditor is hoping to sit back and enjoy returns, which is exactly where most people want to live. They just want to watch the money come into an account, but they are well aware of their lack of knowledge and have opened the door for other Redditors to talk them out of this move. 

The S&P Is Great For Returns

Let’s assume for a second this Redditor is my friend and that they are asking me for advice. The first thing I would say is that in the last 10 years, this S&P 500 has returned an average of 11.3% annually, or 8% when adjusted for inflation between 2014 and 2024. Here’s where the math really starts to show this Redditor what is possible and how I would break this down for them. Let’s say they invest $35,000 now and earn an average 11.3% interest every year for the next 15 years (until 2024). This is a safe assumption to experiment with. 

Now, let’s also assume that they are making the maximum contribution of $23,500 every year and not receiving any employer matching. There is a good chance they are, but the math is still pretty powerful without it and would only get better. If they contribute $23,500 every year and start with the base $35,000 in the S&P 500 until 2040, they would end up with $1,002,551. 

There is no question that this isn’t a strong return, and it more than makes up for any fees they would have to pay and still would likely be higher with employer matching. Just for fun, if the Redditor earns $100,000 and receives a 6% max contribution, their total annual 401(k) contribution would be $29,500, which means their total earnings by 2040 are now just over $1.2 million through the S&P 500. 

What Are Some Other Options

As this Redditor’s friend, I would tell them that now is also a great time to talk to a financial advisor. Listening to folks like me on Reddit can only get you so far without knowing the specifics of this individual’s exact financial goals and their hopes for retirement. 

The good news is that they have plenty of options, including not just going with the S&P 500 but also going into bonds to help offset any market volatility down the road. There is also the consideration of looking at international indexes that can, again, help offset any specific US market volatility while still providing consistent and strong returns. This is exactly the kind of conversation a financial advisor is going to have with you. 

One word of caution I would give is to also remind the Redditor that they are not likely to be someone who should experiment with YieldMax ETFs, and this isn’t something I would want to recommend here. On the other hand, they really need to look at their risk tolerance, as going all-in on the S&P 500 isn’t an idea I would necessarily want to talk them out of. If anything, this is a pretty good idea, and it’s going to provide strong returns, over time, that they can help make for a comfortable retirement. 

Talk to a Financial Advisor

The most important consideration here is that the Redditor will want to monitor their portfolio regularly. If they have a financial advisor, and I would strongly encourage them to do so, especially when they admit to not being financially savvy, I would sit down with them every quarter and review the portfolio. 

Assuming they can find a fiduciary financial advisor, this is someone who has a legal obligation to provide you with good advice that fits your risk tolerance and portfolio needs. I would absolutely feel comfortable telling the Redditor this is who they need to talk to if they want to either go all-in on the S&P 500, so they have an expert who can talk them through the fees, or work with someone who can help them understand how to diversify.