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Why Index Funds are Nuts

edited April 2021 in Fund Discussions
Interesting story. If you invest in the S&P 500 Index (I do) - then over 25% of your money in that fund is on 6 companies: Apple, Microsoft, Amazon, Alphabet, Facebook and wait for it... Tesla.

If you invest in the Vanguard Total Stock Market Index Fund... it's 19%.


  • Wouldn't an equally weighted S&P 500 Index take care of that for you?
  • VEXAX, or other extended indexes, avoids that concentration. So do equal-weight indexes, dividend aristocrats, etc.

    I bought PSLG when I was re-arranging the deck chairs in the IRA. But I'll probably sell it soon.
  • edited April 2021
    Kind of a clickbait headline because you can index pretty much anything nowadays and design the index almost any way you like. The author obviously means market cap weighted indexes, but there's no reason an index needs to be market cap weighted. Also, market cap weighted indexes make the least sense near the peak of a bubble as a handful of frothy stocks dominate it, but that isn't true all of the time or even most of the time. Yes, now is a dangerous time though to buy traditional market cap weighted indexes--not really news or original. People have observed this problem with each bubble going back at least twenty years.
  • It is kind of click-bait (for sure). Regarding "equally weighted" index funds... don't they generally have higher turnover and ER and experience more volatility during down trends? <--which seems counter-intuitive.
  • They will have higher turnover for sure, but not necessarily more volatility during downtrends. It depends on the nature of the downtrend. A 2000-2002 type selloff, an equal-weighted index would've held up better. Not so in 2020.
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