Why do you think financial pros like Warren Buffett suggest that young people invest in index funds for a long period of time instead of investing in individual stocks?

For this week’s discussion, you will use an online interactive activity to investigate what stocks and industries make up the widely used S&P 500 market index fund. You will learn how to analyze the returns of the S&P 500 and gain an understanding of diversification and the value of investing in index funds (a type of mutual fund). First, go to the following link where you will see a visual representation of the S&P 500: FINVIZ S&P 500 Map (Links to an external site.) How to Read the Interactive Map: ● Each box represents one company in the S&P 500 ● The size of the box represents the size of the company (Size is defined by market capitalization) ● The letters represent the ticker symbols for the company (e.g., FB=Facebook, AAPL=Apple) ● The companies are grouped by industry (e.g., money center banks, beverages – soft drink) ● The color and percentages represent the change in the stock price (refer to the color key at the bottom right). ○ Green indicates that the stocks rose during that time period. The brighter the green, the better the percentage return for that time period. ○ Red indicates that the stocks declined during that time period. The brighter the red, the worse the percentage return for that time period. Then, use the information found in the interactive to respond to the following discussion questions in this forum: 1) Use your mouse to hover over the different boxes across the map. What are the first 3 things that stand out to you? 2) The companies in the S&P 500 are categorized by industry (e.g., Technology). What are the three largest industries included in the S&P 500? Now, in the drop-down menu at the far left, select “1 Year Performance”. The map will then show how the stock price of each individual company has performed over the past 12 months. 3) Overall, has the past year been a good one for investing in stocks? Use information from the map to support your answer. 4) What are three of the top performing stocks and their returns in the past year? What are three of the worst performing stocks and their returns in the past year? 5) Look at the color key below the map that shows the overall performance range. What is the range for 1 Year Performance? How does it compare to the 1 Day Performance range? 6) On this map, you see the returns of individual companies. How do you think someone would calculate the return of the entire S&P 500 index fund? 7) Even if some of the stocks have negative performances, can investing in the whole S&P 500 still provide a decent return? Why or why not? 8) Industry analysis: Go back to “1 Year Performance” and find the Communication Services industry → Internet Content and Information section underneath. (Tip: Bring your cursor over the different sections to view data.) a. Who are the leading companies in this industry (based on size)? b. Are all the companies in the industry about the same size? If not, how do they differ? c. How would you assess the competitive situation in the industry? d. Did all of the companies in this industry have a similar stock price performance over the past 12 months? What might explain the differences? e. True or False: The largest companies performed the best over the past 12 months. Give evidence to support your answer. 9) Why do you think financial pros like Warren Buffett suggest that young people invest in index funds for a long period of time instead of investing in individual stocks? 10) What major takeaway did you learn abohkzut the S&P 500 from completing this activity?