For new investors, there's a plethora of advice out there. But beware of blindly following this common tip: "Just invest in the S&P 500." Eric Roberge, a CFP and founder of Beyond Your Hammock, says it's some of the worst financial advice he's ever heard.
Why? "It's not very diversified," he tells CNBC Make It.
Nick Holeman, a certified financial planner at Betterment, agrees. Holeman explains that an index fund can be thought of as a benchmark for a certain type of investment. In this case, the S&P 500 follows the largest 500 companies in the United States.
"But there are so many other indexes out there," he tells CNBC Make It. "There's smaller companies in the United States, there's companies in Europe and Asia and Australia, and there's bond indexes."
In other words, although investing in the S&P 500 is more diversified than owning stock in a single company, it's still only reaching a small fraction of the thousands of potential assets available worldwide. While it's okay to invest in it, that index alone won't provide you with a very diversified portfolio.