Thehe S&P 500 is considered the best indicator of how the US stock market is doing and it is easy to understand why. In the end, it contains 500 of the largest companies in the United States, and they collectively represent 80% of the total value of all publicly traded companies.
However, a feature of the S&P 500, which is very important for investors to understand, is that it is a weighed index, which means that larger companies are a larger percentage of the performance of the index. And with the growth of Trillion Megacap technology companies over the last decade or so, this weighing has led to a fairly high concentration in only a few large companies.
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For example, the largest companies in the United States, Apple(Nasdaq: AAPL) and Microsoft (Nasdaq: msft)They make up 6.8% and 6.2% of the total weight of the S&P 500, respectively. The 10th largest companies in the index make up 35.6% of the S&P 500 performance. This is more than the smallest 300 components of the index combinedS
To put it simply, I like the idea of investing in 500 of the largest and most successful American companies. But I don’t like that much of my investment results, depending on only a few shares, while hundreds of others barely affect my long -term return.
Thehe Invesco S&P 500 Ealt Wegre etf(Nysemkt: RSP) It solves this problem. It invests in the same 500 companies as the S&P 500 Index Fund, except that each component has the same impact on ETF efficiency. This means companies such as General Motors(Nyse: gm)., Occidental Petroleum(Nyse: oxy)and Hormone foods(Nyse: hrl) carry the same weight as technological begemots as Apple, Microsoft and Nvidia(Nasdaq: NVDA)S
The idea is that if the American business collectively perform well, you will reap the benefits. But you will also not feel a significant sting, if, say, Nvidia publishes a bad quarterly report.
Of course, you will miss some of the advantages if massive companies perform well, but this tends to compensate for time with the greater exposure to smaller components of the S&P 500, which tend to have more dynamic growth potential.
Speaking of growth potential, although the same weight S&P 500 is more than the traditional version of the index during the Megacap Tech Surge of the last few years, you may be surprised to learn that the equal weight index actually has superbly His weighted colleague in the long run. In fact, over the last 40 years, the S&P 500 equal weight index has led to a general return, which is more than 400 percentage points, larger than the weighted S&P 500.
^IQX data from ycharts
Invesco S&P 500 ETF ETF has a 0.20% cost ratio, which is slightly higher than you would pay for most standard S&P 500 index funds, but still at the low end for a specialized ETF product.
There is nothing wrong with just buying a traditional S&P 500 index and keeping it in the long run. What was historically a strong strategy for creating wealth and in full disclosure I own shares of Vanguard S&P 500 ETF(Nysemkt: flight) In my portfolio.
However, the relative highest degree of the S&P 500 makes the index efficiency disproportionately dependent on just a few companies, so if you are not too comfortable with this level of concentration, ETF with equal weight Invesco S & P 500 is an alternative that may be worth it.
Before you buy stock in Invesco S&P 500 Eque Weight ETF, think about it:
Thehe Motley Fool stock adviser Analyst team has just identified what they think is 10 best shares For investors to buy now … and Invesco S&P 500 Eque Weight ETF was not one of them. The 10 shares that made the abbreviation could lead to the return on monsters in the coming years.
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Matt Frankel has positions in General Motors and Vanguard S&P 500 ETF. Motley Fool has positions and recommends Apple, Microsoft, NVIDIA and Vanguard S&P 500 ETF. Motley Fool recommends General Motors and Occidental Petroleum and recommends the following options: Long January 2026. $ 395 Microsoft calls and short January 2026 $ 405 Microsoft calls. Motley Fool has a policy of disclosure.
1 Misunderstood S&P 500 Purchase Index Fund Currently for less than $ 200 was originally published by Motley Fool
