The S&P 500 is one of the most popular tools for long-term investors. . It offers instant diversification, reflects the overall U.S. economy, and has delivered strong returns over time. But while the index itself may stay relatively consistent, it doesn’t mean your strategy should stay the same over time.
In this guide, we’ll break down how your investment in the S&P 500 might look at three key stages of life—age 25, 45, and 65—based on your time horizon, risk tolerance, and financial goals. Whether you’re just starting out, mid-career, or preparing to retire, the index can still serve you—just in very different ways.
Why Time Changes Everything: The S&P 500 Over Time
The S&P 500 tracks the performance of 500 of the largest publicly traded U.S. companies, making it a snapshot of the U.S. economy and a trusted benchmark for long-term investors. It includes companies across all sectors—technology, healthcare, energy, consumer goods, and more.
Understanding how the S&P 500 performs over time helps explain why different ages call for different investment strategies. While the index tends to reward long-term investors, volatility is part of the journey.
Let’s take a look at some long-term performance S&P 500 statistics, from MoneyRants.com, that help illustrate just how much time in the market can influence your investing outcome.
- The S&P 500 returned over 400% between 2003 and 2023, despite multiple recessions and crises
- A lump sum of $10,000 invested in the S&P 500 in 2003 would be worth over $52,000 by 2023, assuming dividends were reinvested
- Inflation-adjusted, the real average return is closer to 7% annually
- The worst year since 1970 was 2008, when the index dropped -38.5%.
- The best year was 1995, with a +37.2% gain.
- Despite short-term volatility, the S&P 500 has posted positive annual returns in 75% of years since its inception.
- Time smooths volatility: Over any 1-year period, the S&P 500 can swing dramatically—from gains of 30%+ to losses of 20% or more. But over longer periods:
- 10-year average annual returns (as of 2023): ~12%
- 30-year average annual returns: ~10%
These benchmarks emphasize a core investing principle: time in the market beats timing the market. And for those who stay invested in broad-market index funds like the S&P 500, the rewards tend to increase the longer they stay the course.
So how should your strategy change as you move through life? Let’s break it down by decade—starting with your 20s
Age 25: Growth Mode
From a generational perspective, this stage includes Gen Z—people just entering the workforce and facing long investment timelines ahead.
Time horizon: ~40+ years until retirement
Risk tolerance: High
Primary goal: Maximize long-term growth
At 25, time is your biggest asset. Market dips may feel scary, but they’re also usually temporary—and often followed by gains. The more time you have, the more powerful compounding becomes. Investing in the S&P 500 at this stage allows your portfolio to ride the market’s long-term trend upward, smoothing out short-term volatility.
At this age, your exposure to the index can be as high as 80–100% of your equity portfolio, depending on your risk appetite. You may consider placing it in a Roth IRA or employer 401(k) to maximize long-term tax advantages
If you invest $500/month from age 25 and earn an average 8% return, you’ll have over $1.5 million by age 65 (source). Starting just 10 years later (at 35) cuts that total nearly in half.
How to Invest:
- Use low-fee ETFs like VOO or SPY
- Choose target-date retirement funds with high stock allocations if you want a hands-off approach
Age 45: Balancing Growth and Stability (Primarily Older Millennials and Gen X)
Time horizon: ~20–25 years
Risk tolerance: Moderate
Primary goal: Grow wealth while beginning to reduce risk
At 45, you’re likely part of the older Millennial or younger Gen X cohort, and likely have more financial obligations—mortgage, kids, college savings—and less time to recover from major market downturns. That doesn’t mean exiting the stock market, but it does mean rebalancing to reduce volatility while still aiming for growth.
At this age, your exposure to the index should be around 50–70% of your portfolio, depending on how much risk you’re willing to take. The rest could be allocated to bonds, international stocks, or sector-specific funds for diversification
The S&P 500 still delivers strong long-term returns, but your shorter time horizon means you’ll want to limit downside exposure in case of a major bear market close to retirement.
In 2008, the S&P 500 dropped 38%—but rebounded 23% the next year. If you were retiring within 3–5 years, that timing could have seriously impacted your nest egg. That’s why rebalancing in your 40s is key.
How to Invest:
- Continue contributing to 401(k), Roth IRA, and/or brokerage accounts
- Use auto-rebalancing tools or advisors to shift slowly toward a more conservative mix
Age 65: Preservation and Income
Time horizon: 0–10 years until retirement
Risk tolerance: Low to moderate
Primary goal: Protect wealth and generate reliable income
At 65, you’re likely preparing to withdraw from your portfolio—not add to it. That changes your strategy dramatically. You’ll still want some exposure to the S&P 500, since retirees today may live 20–30 more years—but it shouldn’t be your core holding anymore.
At this age, your exposure to the index should be around 30–50%, depending on whether you have other income sources (Social Security, pension, rental income). At this age you may consider increasing allocation to bonds, dividend-focused ETFs, and cash equivalents.
Historically, even in retirement, a portfolio with some stock exposure outperforms an all-bond portfolio over 20+ years.
How to Invest:
- Consider dividend-paying S&P 500 ETFs to create some passive income
- Use systematic withdrawal strategies (e.g., 4% rule) to manage income and avoid outliving your savings
Risk tip: Sequence of returns matters. A big market loss early in retirement can hurt more than one later in life. A more conservative S&P 500 exposure helps cushion that.
Final Thoughts: Adjust, Don’t Abandon
The S&P 500 can play a role in your portfolio at any age—but how much you invest in it, and why, should evolve over time. At 25, it’s your growth engine. At 45, it’s one piece of a broader, more balanced portfolio. And at 65, it’s a tool to beat inflation while preserving what you’ve built.
Your time horizon, not your age, should guide how you invest—but your age helps define your time horizon.
The goal isn’t to “beat the market.” It’s to match your investment strategy to your life stage—so your money is working for you, not against your timeline.