In 2024, the global economy experienced ups and downs, and the differences between the returns of Peruvian AFPs and the U.S. S&P 500 index became clearer than ever. This blog aims to help you understand what happened, what we can learn, and how to complement your retirement savings.

What Happened in 2024?

Looking at the numbers, there’s no debate: the S&P 500 outperformed AFP funds in 2024. While Peruvian funds showed returns close to inflation, the U.S. index posted impressive growth. Here’s the data:

2024 Returns

• Fund 1 (conservative, max 10% in stocks): 1.4%
• Fund 2 (moderate, max 40%): 4.5%
• Fund 3 (higher risk, max 80%): 2.0%
• S&P 500 (100% U.S. stocks): 25.02%

Source: SBS and S&P Global

The difference is clear. Why does this happen?

What Are They, and What Influenced 2024?

AFP: A Mandatory and Local System

The AFP system in Peru is a mandatory retirement savings mechanism. These funds are designed to protect affiliates by investing in a combination of bonds and stocks. However, in 2024, they faced several challenges:

• Predominantly local investments: More than 50% of AFP funds are invested in the Peruvian market, making them vulnerable to the country’s political and economic instability.
• Massive withdrawals: Congress approved the seventh withdrawal of funds, forcing AFPs to sell assets quickly, negatively impacting returns.
• High interest rates: Globally, rising interest rates affected bond prices, a key component of conservative funds like Fund 1.

S&P 500: Diversification and Leading U.S. Companies

The S&P 500, on the other hand, represents the largest and most successful companies in the U.S. In 2024, the index grew significantly due to:

• AI Boom: Artificial intelligence boosted the tech sector, with companies like Nvidia, Meta, Tesla, and Microsoft leading the growth.
• Economic resilience: Despite global uncertainty (with challenges in Ukraine, the Middle East, and China's advancements), the U.S. economy demonstrated resilience, attracting worldwide investments.
• Fed rate cuts: The Federal Reserve's interest rate reductions benefited the stock market, making U.S. equities more attractive to investors.

Remember: The S&P 500 is an index, and you can invest indirectly through ETFs (Exchange-Traded Funds) like VOO and SPY.

Long-Term Comparison: Which Investment Was More Profitable?

When planning for the future, it’s essential to look beyond a single year. Here’s a comparison over the past 10 years (2014-2024):

• Annualized average return: This represents the average annual return of investments in each alternative. For example, the S&P 500 grew 13.2% on average annually

• Accumulated return: This represents the total return on your investment over 10 years. For instance, $10,000 invested in the S&P 500 would have grown to approximately $34,590, compared to only $18,130 in AFP Fund 2 (calculation is illustrative and doesn’t account for currency devaluation).

Source: SBS and S&P Global

Although AFPs have shown consistent results, the S&P 500 clearly wins in terms of accumulated and annual returns, reflecting the strength of investing in the world’s most innovative and robust economy.

Why Consider Investing in the S&P 500?

While AFPs play a vital role in ensuring mandatory retirement savings, complementing them with investments in the S&P 500 can be a great strategy. Here’s why:

High Returns

Over time, the S&P 500 has generated higher returns than AFP funds, helping to maximize your savings. It even significantly outperformed Fund 3, which also has an aggressive profile with primarily stock investments.

Protection Against Inflation

While inflation in Peru averaged 3.04% annually (Source: BCRP), the S&P 500 had an annualized average of 13.2%, preserving your money’s purchasing power.

Liquidity and Flexibility

With the S&P 500, you can withdraw or contribute at any time without AFP restrictions.

Global Diversification

Investing in dollars and American companies with global presence protects you from risks associated with the Peruvian market and local currency.

Security and Regulation

S&P 500 companies are industry leaders, and U.S. stock market investments are subject to strict SEC and FINRA regulations, ensuring transparency and trust.

How to Get Started? Hapi Makes It Easy

At Hapi, we want to help you take the next step toward a more secure retirement. Our platform allows you to invest in the S&P 500 through ETFs and other products like stocks and cryptocurrencies with ease.

Why Choose Hapi?

• Start investing from just $5.
• Pay lower fees than AFPs.
• Manage your investments freely from your mobile device.

Complementing your AFP savings with investments in the U.S. is not only possible but can be a smart decision. Boost your financial future and build a retirement that brings you peace of mind.

Ready to start? Download Hapi and begin today. Your future self will thank you!