Is Investing Solely In The S&P 500 The Right Strategy For You?


When it comes time to picking your investments, it’s easy to be overwhelmed. There are thousands of publicly traded companies in the US and so many sectors to choose from.

Index funds have made it easy to get cheap diversification. Buy a fund at low cost that gives me broad exposure to the entire market.

Seems easy enough, right? Why waste time doing research on individual companies when I can just buy an S&P 500 index fund SPY and essentially own the market?

But it’s still important to understand what companies are in the S&P 500 and what sectors you are invested in.

While the top 10 companies fluctuate based on their valuations, these are the current top 10 holdings in the S&P 500 index and their respective weightings:

Take it a step further and ask, ‘what sectors do I specifically have exposure to while investing in the S&P 500’?

Again, these numbers are always subject to change, but in general this is the breakup of the S&P 500:

It can be misleading to believe that the S&P 500 provides all the diversification you need when investing.

You may want more exposure to real estate, energy, or industrial companies. Also, what about smaller and mid-sized companies?

Although about 30% of profits for the S&P 500 come from overseas, do you want more direct exposure to non-US companies?

I’m a firm believer that a solid majority of your portfolio should align with the S&P 500.

Why wouldn’t you want to own an index that has averaged about 10% per year for the last 30 years and has a history of beating professionals who try to beat the index?

But I don’t stop there.

I also want to own small and mid-sized companies, companies that are focused on high growth, other companies that are consistently profitable and reward shareholders with dividends.

I want to own more real estate and healthcare and then sprinkle in some more speculative investments that don’t produce income (i.e. digital assets).

So, ask yourself, ‘what am I building?’

Don’t try and pick the right stock or the right sector. Design a portfolio that aligns with your objectives.

In other words, establish a great foundation within your portfolio and then just ratchet up the dials (i.e. invest more money into your existing holdings).

When you understand what you want to own, it helps alleviate stress and saves you time when funds become available to invest.

Your objectives should guide your investment decisions, not what’s going on in the market.

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing includes risks, including fluctuating prices and loss of principal.

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