Note: This article discusses Indonesian financial products and markets. The principles apply globally, though specific products, regulations, and tax treatments vary by country.

Why Not Invest Everything in the S&P 500?

The S&P 500 is an index of the 500 largest US companies — home to Apple, Microsoft, Google, Amazon, and NVIDIA. Its performance over the past 15 years has been extraordinary. So why not put all your money there?

Because past performance is not a guarantee of future results — and this isn’t just a required disclaimer. History proves it.

Recency Bias: A Psychological Trap

Humans tend to extrapolate recent trends into the future. The S&P 500 dominated 2010-2024, so we assume this will continue forever.

But look at longer-term data:¹

Decade	S&P 500 (annual return)	Non-US Markets (annual return)	Winner
1970s	5.9%	10.0%	Non-US
1980s	17.5%	22.2%	Non-US
1990s	18.2%	7.1%	US
2000s	-0.9%	3.5%	Non-US
2010s	13.6%	5.3%	US
2020-2024	14.5%	7.8%	US

US and non-US markets take turns leading. Who will win 2025-2035? Nobody knows.

If you’re 100% in the S&P 500 and the next decade resembles the 2000s (when the S&P 500 delivered negative returns for 10 years), you’ll deeply regret it.

The “Lost Decade” of 2000-2009: A Harsh Reality

From January 2000 to December 2009:

• S&P 500: -9.1% total (yes, negative over 10 years)
• Emerging markets: +154%
• International stock markets: +17%

Investors who were 100% S&P 500 lost money for an entire decade. Meanwhile, globally diversified investors remained profitable.

This isn’t ancient history — this happened in the 21st century.

Specific Problems with the S&P 500 Today

1. Extreme concentration in a few stocks

As of 2025, the “Magnificent Seven” (Apple, Microsoft, Google, Amazon, NVIDIA, Meta, Tesla) account for approximately 30-35% of the entire S&P 500.² This means:

• If you buy the S&P 500, one-third of your money is in just 7 companies
• If US tech companies fall, the S&P 500 falls
• This isn’t diversification across 500 stocks — it’s a big bet on Big Tech

2. Very high valuations³

Metric	S&P 500 (2025)	Historical Average
P/E ratio	~22-25x	~16x
CAPE (Shiller P/E)	~35x	~17x
Price/Sales	~3x	~1.5x

High valuations historically correlate with lower returns over the following 10 years. This doesn’t mean prices will definitely drop, but return expectations should be lowered.

3. Currency risk works both ways

As an Indonesian investor, you might think “S&P 500 + weakening Rupiah = double profit.” This is true if the Rupiah weakens. But:

• If the Rupiah strengthens (for example due to rising commodity prices), your USD returns decrease in Rupiah terms
• If the US dollar weakens against global currencies (this happened 2002-2008), the S&P 500 underperforms in local currency terms
• You can’t predict currency movements better than professional experts

4. Ignoring home country bias

Most investors overweight their home country — Americans invest mostly in US stocks, Japanese mostly in Japanese stocks, Indonesians mostly in Indonesian stocks. This is called home country bias.

For Indonesian investors:

• Living expenses are in Rupiah — you need returns in Rupiah terms
• Career and business income are Indonesia-correlated — if Indonesia’s economy does poorly, your job/business might suffer too
• Going 100% S&P 500 means betting your entire financial future on the US economy, in a currency you don’t spend

Ideal diversification includes:

1. Some Indonesian exposure (IHSG) — aligned with living costs and economy
2. Some US exposure (S&P 500) — access to innovation and strong companies
3. Some other global exposure — further risk spreading

Drawdown Comparison: How Portfolios Perform in Crises

Looking at maximum drawdowns (peak-to-trough declines) shows the value of global diversification:

2008 Global Financial Crisis

Portfolio	Maximum Decline	Recovery Time
100% S&P 500	-57%	~5 years
100% MSCI World (global stocks)	-54%	~4.5 years
60% US / 40% International	-52%	~4 years
80% global stocks / 20% bonds	-43%	~3 years

While all stocks fell, the diversified portfolios declined slightly less and recovered faster.

2000-2002 Dot-com Bubble

Portfolio	Maximum Decline	Subsequent 10-Year Return
100% S&P 500	-49%	-0.9% annualized
100% NASDAQ	-78%	-1.0% annualized
100% International stocks	-46%	+3.5% annualized
50% US / 50% International	-47%	+1.3% annualized

International diversification provided positive returns while the S&P 500 was stagnant for a decade.

2020 COVID-19 Crash

Portfolio	Maximum Decline	Recovery Time
100% S&P 500	-34%	6 months
100% Emerging Markets	-32%	8 months
100% IHSG (Indonesia)	-37%	7 months
60% US / 40% International	-33%	6 months

In 2020, US stocks recovered fastest (helped by massive Fed stimulus). But this isn’t guaranteed in future crises.

Key lesson: No one knows which region will be hit hardest or recover fastest in the next crisis. Diversification ensures you’re not completely dependent on one country’s recovery.

Tax Implications for Indonesian Investors

Many Indonesian investors don’t realize that holding US stocks has tax consequences:

US Taxes

• Dividends: US withholds 30% tax on dividends paid to Indonesian investors (can sometimes be reduced to 10% if tax treaty properly claimed via W-8BEN form)
• Capital gains: No US tax for foreigners (you only pay when selling)

Indonesian Taxes

• Dividends from abroad: Should be reported in annual tax return (SPT Tahunan) as foreign income
• Capital gains: Same reporting requirement
• Actual enforcement: Many retail investors don’t properly report, but this creates tax risk as authorities improve cross-border data sharing

Practical impact

If you invest in S&P 500 ETF via Gotrade/Pluang:

• You receive 70-90% of dividends (after US withholding)
• You should report gains in SPT Tahunan
• This is more complex than purely domestic mutual funds (which handle all tax automatically)

Not a reason to avoid US investing entirely, but it adds complexity compared to investing through Indonesian mutual funds where all tax is handled automatically.

Constructing a Practical Global Portfolio for Indonesian Investors

Given limitations on access to global markets for Indonesian retail investors, here’s a realistic approach:

Tier 1: Foundation (Available to Everyone)

Component	Product	Allocation	Access
Indonesian stocks	IDX30 or LQ45 index fund	40-50%	Bibit/Bareksa/Tanamduit
Indonesian bonds	Fixed income fund or SBN	20-30%	Bibit/Bareksa/Tanamduit

This alone is already acceptable. Many Indonesian investors stop here.

Tier 2: Adding US Exposure (Requires Gotrade/Pluang)

Add to Tier 1:

Component	Product	Allocation	Access
S&P 500	VOO or IVV ETF	15-25%	Gotrade/Pluang

Now you have Indonesia + US exposure. Better than pure IHSG or pure S&P 500.

Tier 3: True Global (Advanced, Harder Access)

For investors with access to international brokerages (IBKR, etc.):

Component	Product	Allocation
Indonesian stocks	IDX30 index fund	30%
Global stocks (VT or VWRA)	Vanguard Total World ETF	40%
Bonds (global or Indonesian)	AGG or BND (US bonds) or Indonesian	20%
Money market/cash	Indonesian money market fund	10%

This is ideal diversification, but requires significant setup effort and understanding.

Recommendation for Most Indonesian Investors

Start with Tier 1. Add Tier 2 if comfortable. Don’t feel pressure to achieve Tier 3 — the improvement from Tier 2 to Tier 3 is marginal compared to Tier 0 (no investing) to Tier 1.

Why Global Diversification Is Better

Instead of 100% S&P 500, consider exposure to the entire world:

Region	% of Global Stock Market	Diversification Rationale
US	~60%4	Largest companies, innovation
Europe	~15%	Cheaper valuations, high dividends
Japan	~6%	Corporate governance reforms
Emerging Markets (including Indonesia)	~12%	High growth, young demographics
Other Asia Pacific	~7%	Diversification

Global investors who follow market weights naturally already have ~60% in the US. You still benefit from US growth, but you’re also protected if the US underperforms.

Implications for Indonesian Investors

Realistic options

Option	Suitable For
100% IHSG (Indonesia Stock Exchange Composite Index)	Too concentrated (see previous article)
100% S&P 500	Too concentrated (this article)
IHSG + S&P 500	Better, but still lacking
IHSG + global (including US, Europe, EM)	✅ Best

Simple allocation example:

Component	Allocation	How to Access
Index fund tracking IHSG	50-60%	Bibit/Bareksa (Bahana IDX30, BNP Paribas SRI-KEHATI)
S&P 500 ETF	20-30%	Gotrade (VOO), Pluang
SBN (Government Retail Bonds)/bonds	10-20%	Bibit/Bareksa during offering periods

This is already far more diversified than 100% in any single index.

”Isn’t the S&P 500 Already Global?”

A common argument: “S&P 500 companies operate globally, so I’m already diversified.” This is partially true — Apple sells iPhones worldwide. But:

1. Stock prices are still influenced by US market sentiment — US regulations, Fed policy, US politics
2. You miss out on great companies outside the US — TSMC (Taiwan), ASML (Netherlands), Samsung (Korea), Novo Nordisk (Denmark)
3. Global revenue ≠ global valuation — US stocks are still priced based on US investor expectations

Summary

Misconception	Reality
S&P 500 always wins	US and non-US take turns leading each decade
S&P 500 will definitely go up long-term	2000-2009: negative returns for 10 years
S&P 500 = 500 stocks = already diversified	7 stocks = 30%+ of the index
Valuation doesn’t matter	High valuation correlates with low returns

The S&P 500 is an important part of a global portfolio — but it shouldn’t be the only part.

Wise investing means spreading risk: IHSG for local exposure, S&P 500 for US exposure, and ideally other global assets. Boring? Yes. But that’s how you protect your wealth from future uncertainty.

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Disclaimer: This article is for educational purposes only, not investment advice.

Related Articles

• Why Not Just IHSG?
• Portfolio Asset Allocation Strategy
• Dollar Cost Averaging: Myths and Reality
• Mix Your Own or Buy Ready-Made Fund Packages?
• How to Evaluate Portfolio Performance

Footnotes

1. Historical S&P 500 return data can be verified at macrotrends.net or global market data sources like MSCI ↩

2. The Magnificent Seven weighting fluctuates, reaching approximately 34-35% of the S&P 500 as of early 2026. Check current data from index providers like S&P Global or market data platforms like MacroMicro. ↩

3. S&P 500 valuation data can be found at multpl.com or Robert Shiller’s website for CAPE ratio ↩

4. Global market allocation changes over time. Sources: MSCI World Index, FTSE Global Equity Index ↩