Quote Of The Week: Is The S&P 500 Index Giving You The Diversification You Need?

(Image: Andrew Martin/Pixabay)

“Like most indexes, the S&P 500 is weighted by capitalization: The bigger the market cap a company has, the more its influence on the performance of the index.

Any cap-weighted index fund is a heavy bet on larger companies. Lately, that bet has become extremely heavy because a few stocks have become gigantic. All by themselves, Alphabet (GOOGL), Amazon.com (AMZN), Apple, Facebook (FB) and Microsoft (MSFT) represent 22% of the value of the S&P 500.

You may think you are getting broad diversification by buying an S&P 500 Index fund, but you are actually making a substantial wager on a handful of stocks in the same sector.”

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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