Why owning a tiny piece of 500 companies is smarter than picking one.
Most people assume that professional investors — the ones with degrees and decades of experience — consistently beat the market. The data says otherwise. Over any 15-year period, roughly 90% of actively managed funds underperform a simple index fund that just owns everything. This is why the index fund is the most widely held investment in the world.
What the S&P 500 actually is
The S&P 500 is an index of 500 large American companies selected based on size, financial health, and trading volume. It is not a static list. Companies enter when they grow large enough and exit when they shrink or fail. The index is self-cleaning. You never have to make a decision about what stays or goes.
This is called diversification — owning many different investments at once so that no single failure can wipe out the whole. It is one of the most fundamental principles in investing, and the index fund delivers it automatically.
Top 10 S&P 500 holdings
Why the fee cap matters more than it sounds
Every fund charges an annual fee called an expense ratio. It comes out of your balance automatically, every year, regardless of performance. The average actively managed fund charges between 0.5% and 1.5% annually. Trump accounts are capped by law at 0.1%.
That difference sounds small, but over 18 years, it is not.
The case for owning everything
When you buy an index fund you are not betting on any single company. You are betting that American businesses, as a whole, will be worth more in the future than they are today. That has been true over every extended period in market history.
Individual companies fail and industries collapse, but an index fund absorbs those losses and keeps going because the companies that replace them are already in it.
Warren Buffett
Warren Buffett is widely considered the most successful investor of the past century. Starting with a few thousand dollars in the 1950s, he built Berkshire Hathaway — a holding company that owns businesses ranging from insurance to railroads to consumer brands — into one of the largest companies in the world. His annual letters to shareholders are studied by professional investors globally.
In his 2013 letter, he wrote that the instructions for his estate direct the trustee to put 90% of the cash into a low-cost S&P 500 index fund. The man who spent a lifetime picking individual stocks does not recommend that approach for anyone else. For ordinary long-term investors, he recommends owning everything at the lowest possible cost.
The investment in your child's account is not a government experiment. It is the same vehicle that financial professionals, economists, and the world's most successful investor point to when asked what ordinary people should do with long-term money. The law requiring it is not limiting your child's options, but protecting them from the products designed to extract fees from families who do not know the difference.
Your child's money is held in a regulated brokerage account, administered by Robinhood under the authority of the U.S. Department of the Treasury, with the same legal protections as any investment account in America.