S&P 500 Index Concentration at 50-Year High | What Should Investors Do?
Вставка
- Опубліковано 8 кві 2024
- Today, the top 10 companies in the S&P 500 Index account for more than 33% of the index. That's the largest concentration we've seen in 50 years. In this video we'll cover three things:
1. Just how significant is the concentration?
2. Does it tell us anything about future returns?
3. What, if anything, should we do about the concentration.
Resources mentioned in the video:
Goldman Sachs article: www.goldmansachs.com/intellig...
Russell Investments article: russellinvestments.com/us/blo...
S&P Global Study: www.spglobal.com/spdji/en/doc...
Join the Newsletter. It's Free:
robberger.com/newsletter/?utm...
Financial tools I use:
I track all of my investments, performance, fees, and asset allocation with Empower. It's Free:
go.robberger.com/personal-cap...
My retirement plan comes from New Retirement, the most robust retirement planner available at a reasonable cost:
go.robberger.com/new-retireme...
I used Capitalize for my last 401(k) rollover. They did all of the work, and it's Free:
go.robberger.com/capitalize/y...
My budgeting tool of choice is Tiller. It downloads all your banking data to Excel or Google Sheets:
go.robberger.com/tiller/yt-tools
We save and invest our credit card rewards. Here are some of my favorite credit cards:
www.allcards.com/best-credit-...
My Book (Retire Before Mom and Dad):
amzn.to/2MsRJ9B
#retirement #investing #robberger
ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
LET'S CONNECT
UA-cam: / @rob_berger
Facebook: / financialfreedomguy
Twitter: / robert_a_berger
DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.
*YT Quick Survey:* For your shared investing ideas, what do you think will be the next Apple/Microsoft in terms of growth?
None!!!! considering the present unpredictable market volatility there are over a thousand reasons why the market is a no go especially now.
Although the market isn't so stable at the moment, it isn't as sick as some people have made it look... In all honesty, as a beginner who knows next to nothing, I have made over $12k net-profit just in a couple of months... I'm a retiree, and I am using these extra resources to help pay for odds and ends that I want.
I own shares of each and have for over 20 years. It has been a good ride, and they are helping to fund my retirement.
I am a simple investor. When I see a video that has to do with investing in the S&P500, I always click like
You can never say never to opportunity like S&P 500 ETFs, SPY which is up. I’m being instructed by an intelligent investor to buy more anytime it drops, cashing up along the way on every moves, also incorporating new stocks.
There’s much uncertainty now, my question is what stocks can be the next wave in terms of growth for the next decade?
SPY, IVV, VOO hitting the scene so far. These ETF's doing just fine.
Stocks is not only about anticipating moves based off trends but anticipating through participating behind real top performers and attain how they execute perfectly.
coach Frost hilda take good care of my holdings giving me an edge to successful interest.
l've been getting suggestions to use a proper enlightened top tier, please help, I will settle for a similar term just to ensure I get it right this time.
I've had majority of my holdings in ETFs, tech stocks and I've had 65% increase in my portfolio, especially with Nvidia P/E (price to earnings ratio) adding few others, Feel free to write direct.
@ Rob.....glad to see you back in the desk chair making a video. Godspeed to your back health.
At 73, I try real hard to not think about my investments, and just live my life, that’s why I invest simple with 80% S&P 500 (SWPPX) and for now, 20% in CD ladders. Oops here I go again, listening to one of Rob‘s wonderful videos and thinking about my investments.
Thank you for always adding to my financial education. Almost retired and prepping for it.
Great video as always--as far as what I'm doing, I'm channeling Mr. Bogle. "Don't do something, just stand there!"
Long-standing advice for investing in equities is to never have more than 10% of your holdings in any individual stock. Right now, if you were 100% invested in an S&P 500 Index fund, you would have no more than about 7.25% in any single stock, with most of your holdings being 5% or less. Coupled with a reasonable cash position, it's still a fantastic way to invest. It gives you all of the exposure to "international" you might ever ask for, since virtually every company on the index is a multinational, and you're still very well-diversified, within the equities market. How much you have in bonds is another topic altogether.
Very, very interesting and informational. Thank you, Rob!
Thanks, Rob! Nice chat!
The Pareto principle (80/20 rule), when applied to investing, says that 80% of the gains in the stock market come from 20% of the stocks. It then seems that a cap weighted fund gives you a better chance of obtaining those 80% gains.
Hi Rob - thank you so much! They way you have structured this video is very helpful and inspiring for people like me, living in Italy where we tend to have a strong country bias in our portfolios.
Great subject, I have a little of everything you mentioned but the vast majority because it in my TSP fund is in the S&P. In my brokerage account I went into VTSAX to try and diversify a little. I would love to see more discussions on bonds as the rates are at 20 year highs and I'm older and I am moving my cash assets now into bonds. I have bond funds BDN and also a T-Bill ladder for short term bonds. A discussion on longer term bonds to narrow my choices would be appreciated.
Watching financial videos and their analyses is akin to watching the 'X-Files' - nothing conclusive is said but the truth is out there 🙂
Great video!
I have a multi asset class approach - 25% global large cap blend, 25% small cap blend, 30 global large cap value, 10% REITs and 10% EM for me.
I’m not worried about concentration…
Sounds a bit Paul Merriman ish.
Another great video… thanks:-)
Excellent information as always…. Thank you for timely thought provoking content. Makes me a better investor.
Nice video. I am a SPY believer because the top corporate performers should be weighed as a percentage. My bigger reasons are liquidity, penny wide options, and diversification. I typically make 20% a year. Then pocket half of that as an annual deposit to fund my lifestyle in January. It is a fact 55% of the time the stock market is up. I focus on up days.
Interesting video that somewhat mirrors my strategy. My equities are 70% Total U.S., 20% Total International and 10% Small Cap Value. I do not like the current high concentration of ten large companies in my Total U.S. index fund but I have had my current allocation for many years and I have no plans to change it.
Thanks for all you are doing. I'm doing nothing in regard to the S&P. Overreacting has cost me in the past.
Yes psychological emotions kill your long term success.
Very well said
Thanks for the video , I’m in England I have some s and p 500 with vanguard as well as their all world dividend , thanks for the info anyway
Thank you Rob
We are shown the correlation between recessions and the concentration of the largest companies. But is the concentration causative to recession? Or is recession causative to the concentration?
I suspect the recession is creating fiscal pressure on the smaller companies causing them to contract or even drop out of the S&P 500, a more micro-economics viewpoint. A kind of economic distillation process. A deep dive of each of the historical recessions to compare the composition of the S&P before and during each recession could tease this out.
Perhaps it is somewhat like making maple syrup from the sap. As the heat is turned up water is flashed off and the syrup becomes thicker. Or in this case the weak are eliminated and those with big cash available survive , make changes, therefore coming out of recessions' better positioned to create profits.
I'm not saying this is absolute but it would be my working hypothesis.
A correlation by definition is not causative. The classic example is shoe size and reading ability.
@@anthonyfaust886 Of course that is the point so why make changes to our investment mix. But could there be a causative relationship. The markets are generally reactive to invents in the economy certainly not causative.
Another great video!
Tempted to rotate half to large cap value fund, . . . but then I realize I'm so much happier when I don't care enough to change/monitor accounts, and I can just focus on my job. So . . . I will do nothing.
How about dividing between growth and value funds? VUG is extremely concentrated, but VTV is a lot better and gets you away from companies that have nowhere to go but down with a $2T market cap and a PE ratio in the 80s. To take it a step further, you can divide things both ways, the Russell 1000 and Russell 2000 in growth and value flavors (VONG, VONV, VTWG, and VTWV) will give you three out of your four funds that are protected from the concentration. S+P 500, 600, and 400 in both flavors would give you six (five protected). In either case, you are still holding a tiling of the US economy, which I think remains a solid investment.
Rob, another great video and timely as I was also looking at the high concentration of the S&P 500 as holder of VOO. I know your thoughts about dividend ETF's :) so I would appreciate your thoughts (or video if you feel necessary) about investing in a Free Cash Flow ETF (i.e. COWZ or similar)? These types of ETF seem to provide a reduced risk exposure to a down market as well as invest in companies who have funds to be used to grow the business.
Always enjoy your take Rob, and I always learn something. Thanks!
Hi, Rob, love your videos. How do I find the performance over time of target date funds in a 401k? My Dad gets statements, but there’s apparently no ticker to look up the fund’s performance, and I don’t want to graph it myself from statements. Help!
In the top 10 stocks, two of them are the same company - Alphabet Class A and Alphabet Class C. If you really want 10 different companies, you'll have to include JP Morgan Chase, which is the number 11 stock. Now you're up to 36%.
As you know, I have a portfolio of conservative, dividend-paying stocks that is less volatile than the S&P. It's worked for me.
Great video as always, thanks Rob.
Again, Excellent Content Rob! Thanks!!
I wonder how the portfolio rebalancing process for the S&P coushions the risks as that concentration unwinds over time. The cap weighted doesnt out perform by accident. It outperforms because it systematically rebalances. You could try to use some counter cyclical sector weights, or over weight value, but as rob said now you are really just playing some market timing game and will underperform for long periods.
I added small caps AVUV, VBR, DFIV several months ago in one account and in another added AVGV as a single fund to cover it all.
Appreciated the video!
In a taxable account?
@@bodysupport the first 3 in taxable, AVGV in an IRA.
Cool. Was looking at AVUV for my taxable account but not sure on how tax friendly it is.
Good video. I use the 3 fund portfolios, and while I liked the video, I'm going to stick with it.
Many Boggles heads here 😊
True… and yet, who is smart enough to reliably pick smarter companies than those 10… and diversify elsewhere?
Feel if you are here for long term, buy and hold. You can’t go wrong with S&P 500. I always believe in Pareto principle, 80% consequences come from 20% causes. The top 10 US tech companies will make us wealthy in the long run. International is still dominated by these companies :) great video Rob.
Thanks for this video. Always great content! I plan to stay the course! I’ve always lost $$$ when I have strayed. Set with low cost index funds (currently 50% VTI, 20% QQQM, 15% SCHD, and 15% VXUS), forgetting it, and rebalancing annually. At least that’s my plan until next week, lol!
This is a portfolio that will make you millions and millions of dollars, just keep on doing it
Have similar portfolio except I have 35% QQQM and did not pursue international.
Would anyone mind breaking down this portfolio for me? What are each of these funds? What do they each expose you to and what is the reason for the allocation distribution? I’m just getting money for the first time in my life and am trying to decide on my own portfolio.
@@dawgdawg8419 VTI is total stock market (it’s like your stabilizer that can give 9% to 11% ROI), QQQM is like your accelerator which is a growth fund with 12% to 17% ROI and SCHD is your dividend fund which can give you constant income. The % of allocation is based on your age, risk appetite, retirement goals etc. search for 3 fund portfolio VOO,QQQ and SCHD you will learn more.
Why do you have 100% equities?
It would be nice to get Warren's thoughts around this given his affinity for the S&P 500.
Warren Buffett has billions in cash, specifically short term T Bills.. tells ya what he thinks..
I question whether REITs are a good investment. I also question being in too many different areas. As you invest in more areas it becomes harder to manage which companies are the leaders and which are the laggards.
I diversify large cap US SP500 with VYM, which has a much different mix than VTI/SPY. VYM (Schwab ppl like SCHD instead of Vanguard’s VYM).
Great content Rob. Well balanced and reasonable. I do like your approach of allocating to small and mid capitalization funds. Well worth the additional "complexity" if you can even use that term for how easy index funds make it.
Great video! I disagree on one thing: International stocks in the next many years look pretty risky. See Peter Zeihan and guys like him re China, Germany and other non US countries' problems.
It’s really the top 9 companies that make up 33%, because Alphabet is in there twice. Seems to me you should hold international (and small cap value if you buy into the factor arguments) regardless of high concentrations or high valuations. Set it and forget it. Tinkering usually leads to worse outcomes.
Do you know any value factor funds that have good strategies? It seems like as good a time as any to add some tilt, but the products I have seen don't have strategies that I am confident would capture the underlying beta well, i.e. stuff like not bothering to compensate for sector/industry overweighting or not integrating the momentum factor to make sell decisions. Maybe they don't have enough theoretical or empirical evidence?
@@BlueIron64 Ben Felix recommends the Avantis funds, like AVUV.
@@BlueIron64 Ben Felix recommends Avantis ETFs like AVUV.
I’m a diversified investor. Yes I own the S&P 500 but it is only 30% of my portfolio. Diversify with small, value, international, and bonds and stop benchmarking everything to the S&P.
Good topic, good video. Thanks Rob.
The idea of investing in the S&P 500 companies *without* weighting by market cap is intriguing.
But constant rebalancing to maintain equal weights is expensive over the long term.
@@george6977 how so. If done in a retirement account
It’s sort of like how police officers give speeding tickets to people regardless of their wealth status ie. a person making $250k per year and a person who makes $25k per year get punished with a $200 fine.
In Germany the fine is a function of how much your income you have, so you are punished in a way that would deter you from speeding again
@@CaptainBenjamins
Yes, the former is a regressive fine. That's how flat taxes are. Extremely regressive.
It seem like it would be pretty painful to miss out on meteoric rises of single companies since you would constantly be getting rid of their stock as they grow. The reverse would be rough as well since you would buy more and more of a company that is doomed.
“I have no earthly idea!”!😂
Smartest answer I've ever had!
@@rob_bergerwe love you Rob
Keep it simple.
80% VTI
20% VXUS
No bonds since I'm in my 20s.
😊
agree but, with your long time horizon much less risk due to plenty of recovery time.
I'd drop the VXUS completely. Its only gained $10 in 10 years.
@@sailingsvzara Yeah I just did a portfolio back test with Portfolio Visualizer starting with $10K from 2011-present and VTI is at $50K and VXUS $21K, so certainly might reduce it or eliminate it. Rob even said international has done poorly for the last 10+ yrs.
@@sailingsvzaraNothing wrong with that, you’re just less diversified. Just because the US generally has performed better than International doesn’t mean it’ll always be that way. Rob has a good video on this titled something like, “How much international should I have?”
I think with AI developing at an exponential rate, we are in a new generational development phase, where technology and healthcare in particular will see a significant growth atleast for the next 10 yeras.
I try not to look at the concentration or think about it, because whenever I do I get annoyed that I am investing in one overvalued company after another.
How do I handle the future? Maintain an asset allocation. It's a systematic way to buy low and sell high. Other than that, my crystal ball is cloudy.
so you mean rebalance annually back to the original allocation?
@@CapCityDC- Rebalance periodically, yes.
Index funds are weighted by capitalization. Capitalization does not directly correlate to revenue or earnings.
Put the issue of concentration aside for a minute. The first thing that hits you with your first chart is....the record level of the SP500. The second that should hit you is its been like FIFTEEN YEARS since we've had a recession. It's overdue and coming.
Unfortunately lame 401k choices mean either S&P or some underperforming mutual funds with high fees or maybe a safe bond fund with astronomical volatility. Oh the joys.
You could do a lot worse than having a low cost S&P option.
Yeah true
Are the other 490 companies considered small cap compared to the top 10?
I would be interested to know what small cap ETF you have.
I think he has VBR or AVUV
Would it be better to invest in the top 10 of the S&P instead of the S&P Index?
VXUS returned 13.25 over the last 5 years. I'm thinking that's less than CD returns albeit CD's are taxed as ordinary income. I also think, these large Tech are global companies. Love your show and newsletter. I am a follower. I just don't trust international stocks. Imagine if China invades Taiwan. The US is subsidizing large chip companies for a reason. Feel free to correct my opinion.
While that may be true, china only makes up 2.5% of the entire global market cap within VT. That means Microsoft, apple and Nvidia each as a single company take up more market cap than all of china within the fund.
actually, Morningstar says 5-year return was 5.73 %
China invades Taiwan is a very small risk right now...why would they? what would be the gain, they will just continue to chip away and wait for the right time when they wouldn't have to deal with the US.
Investing VXUS over the last 40 years, doesnt even beat long term treasuries. Putting $1000 a month since 1987:
100% VXUS = $1.4MM
100% 30-year treasuries = $1.4MM
100% S&P500 = 5.2MM
So you might as well put your money in bonds and get to the same spot with less volatility and less risk. Ex-US hasnt return on the risk premium in my lifetime
Ex-US companies give an investor US exposure because most are global and therefore make profits in or from the US. The global argument made for the S&P 500 applies equally to VXUS, and therefore it is a bogus argument. VXUS is a diversifying move, a defense against events that impact US companies more harmfully than ex-US companies. If an investor cannot conceive of such a scenario, then he lacks imagination. What happened yesterday or in the last 5 years has no bearing on tomorrow. Apart from diversification and defense, one might also invest in ex-US companies from a value perspective. Their price to earnings ratios are much more attractive at the moment than US counterparts.
The problem I have with your reasoning is when the S&P 500 goes down 10-30% just about all stocks funds goes down with it. The small stock and Int'l funds usually fall further than the S&P . I choose to stay invested with dollar cost averaging . It is a proven wealth builder. No need to deviate from the norm to chase somewhere, simplicity is best.
Have you considered doing that with more than one fund, potentially increasing your chances of catching at least one of them at a low with each contribution? My admittedly short experience with that is that large/small or growth/value or sectors move together often but not always and usually not to the same extent.
Big trouble is brewing in the market. Buy and hold is not the best strategy anymore. Sell and stay in cash and/or gold and silver. Huge recession coming.
@@l.siestador7248 lol literally the worst comment / advice. Good luck.
Easy to diversify if in a tax deferred account, even into a total stock market fund which would give a little more diversification. If in a taxable account, stay the course.
I've had all my money in Large Cap and Mid Cap S&P 500 ETFs for the past 16 years and I have done VERY well. I tried international for a couple of years and bombed. I'll stick with domestics.
What about just holding a % of your money in a money market fund and reinvesting as the market dips?
I thought something similar. If one is concerned about a market correction, perhaps a shift in asset allocation is advisable. For me that would mean more bond fund (like BND) rather than cash. But of course we ‘re then trying to time the market. And @Robberger would say: yeah, but when will you know when to get those funds back in and what opportunities do you miss in the meantime?
The classic response to that is that you might be waiting a long time for that dip to the point where you've missed out on market gains. The fact that cash is returning so much these days makes that strategy more tempting than it was a few years ago though.
The US and UK stock markets were much more highly concentrated in1900. Then it was in financials and railways.
I'm doing nothing and sticking to the plan (to save monthly).
Boggles heads principle😅
This is the way!
No one has any idea what the market will look like in 10 years except the top companies will drive the S&P 500. That’s the only thing that won’t change. We are staying the course.
The top companies are the best companies ever.
Retired couple, possibly the least affluent in the 6th most expensive county in US (Marin), have no debt, no mortgage....Have 500k=/- in laddered T Bills....in concert with SS and a small pension, we need 3.8% of our $ per year....T Bills are returning 5%+....our portfolio actually grows very slightly...we are careful and content with what we have...including spending two months a year in Italy....it could be worse.
Congrats. No debt and no mortgages are keys to a stress-free retirement. And with T-bills returning so much they are a no-brainer. Especially if you buy from the Government via Treasury Direct and do not have to pay state taxes on the gains.
Historically smallcaps return a tiny bit more than largecap. Why not go all in on smallcap right now as they are more reasonably priced?
Higher risk
@@ray_glaze Is it though?
@@evarlast yes. You can check the numbers for yourself.
You asked for a reason why not go all in on small cap. I gave you one. You are not comparing apples to apples
At the end of the day, what you do with your money is your responsibility. You alone will live with the consequences.
I wish you well.
One appeal of large cap is that it has a sort of built in stop loss mechanism since a company would be ejected from the 500 if it did poorly enough. I'm no expert by any stretch, but I see that as a reason to be careful about using small cap as your only qualifier. Maybe consider small growth or small value to add one more qualifier and possibly protect you from riding companies all the way to zero.
@@valleyofiron125 I intended no such implication. That interpretation is your own. At the end of the day, each investor must use their own experience and judgement and plot their course.
I've made no changes to how I invest in my 401k and HSA due to limited fund options. In my Roth IRA I already have a mix of total market and S&P 500; with the heavy weighting I've been making 2024 contributions to the total market since it has a slight lower weighting on the biggest companies.
I love the S&P 500 it's probably the best overall fund in the stock market. Although it's kind of ironic how higher weighted ETFs in the top 10 holdings like VUG, QQQ, MGK has outperformed VOO and SPY over the years. When there's a bear market you really take a beating on high growth ETFs compared to S&P. I had VUG as my core in 2022 and it took such a beating i sold it when the market went up and bought VTI. Its been a smooth ride ever since, VTI is pretty much the S&P with a little taste of the whole market mixed in.
Rob, can you please do an episode on VGHCX (Healthcare Index)? I’ve looked at this US Healthcare fund in portfolio visualizer and it destroys small cap value over the past 25 years. It also has much lower volatility and market correlation. Wouldn’t this be better for downside risk and volatility? What am I missing?
invest via ETFs with a trailing stop, if you are stopped out, reevaluate
For a 30 year old US investor, do you recommend we buy VOO, VTI or VT? Should we be 100% US stocks, or should we buy an all cap market fund like VT and just let the market decide the winners? Are we losing gains from the higher fees and mandatory foreign dividend tax withholding vs just going with US stocks? I really like VOO and SCHD, but I understand the idea of diversification with VTI and VXUS or just VT. It's so hard to decide because we never really know if adding small/mid caps and international will help us or hurt us like the last 10-15 years.
checkout his videos over the years. he covers all this info in amazing detail and much, much more !! any video that says “three fund portfolio” is a great place to start
VOO and VTI have almost identical returns over the long term (multiple decades). Rob himself holds about 20% international, when he's talked about his personal portfolio. So that would but him at lower ex-US allocation than VT (which I think is around 40%, havent checked lately)
This sounds like one of those metrics that's "correctly predicted 12 of the last 5 bear markets."
Debt fuels our current economy.
Buy a diverse collection of profitable businesses, and ignore all the noise.
Only 32% of my money is in s and p 500. So, I’m good.
No expert, but I feel like this is an easy problem.
1. Own international index funds like VEA
2. Own different asset classes, like your own home, and small cap value.
3. Own bonds or annuities if you need a less risky asset in the short-to-medium term.
4. Keep some of your money in VOO or VTI even though it’s concentrated. It’s an asset class, too.
SCHG is King 😊
As a few good men said.. YOU can't handle the Truth ! and in this case.. can YOU handle the Volatility ??? RSP (equal weight) beats a 60/40 portfolio with less volatility, but the VOO beats them both... if you have the stomach to see your 401k become a 201k at times... I know my stomach limitations and so keep some RSP and Bonds/Myga's around to sleep well at night.
Why didn't you invest in some of those companies? You've known they were successful and profitable for decades....
The market is going to go to S&P of 5500 by the end of 2025. The reason is the good indicators are going to remain good while the fed rate continues to moderate inflation all continued to be fueled by $1,000,000,000,000 per year of deficit spending.
Keep buying through thick or thin, especially through thin. Turn off TV and enjoy the bourbon.
and if things go down just buy cheaper bourbon :-)
What should investors do? Really? Or do you mean speculators?
What I don’t understand is, on one hand we are told the stock market will crash and yet on the other we are told ways of investing in the stock market. Oxymoron or paradox? I'm considering investing over $300k, but I'm uncertain about risk mitigation strategies.
I vote for no change.
🤘agreed Rob
35% S&P 500
35% total us market
10%LCV
10% SCB
10% SCV
Put is all on Tesla and ride the wave
Sell it all when the S&P 500 reaches 5300+.
Nobody knows nothing