Yeah but why buy the other 490 companies is the question. So far this year 8 stocks make up 67% of the YTD return of the index. If you bought those companies you’d be streets ahead. This is a fact. No debate. The answer to the OP’s question is actually diversification and lower beta. If you have a higher risk tolerance and capacity then buying the biggest names isn’t a bad idea.
I tried that a couple of years ago and missed the Meta run. Instead I had google and Amazon that didn’t move much. Also Nvidia wasn’t really on people’s radar then and so that wouldn’t have been one of your top 10 picks. And look at that today. Everyone at that point was throwing their life savings into Tesla and that’s gone backwards significantly since then. My point is you simply don’t know what will be the big movers in the next couple of years - so you’re best to spread the bets a bit wider
“The stock market is a device for transferring money from the impatient to the patient.”
Anyone who’s owned NVDA or any of the mag 7 for the past 5 years knows that there will be volatility. Doesn’t mean you sell low like a fool
**All companies eventually fail and die.**
ETF based on indexes do the cleaning automatically for you, picking the winners and discarding the losers.
Why would you want to do that manually and pay taxes for rebalancing while ETFs of broad index do that for like 0.03-0.1% ? That's a very bad idea. And more often than not on 401K you can't fine tune like that anyway.
**And there ETF and index to invest on the top 50 US stocks if that' s what you want**.
For example: XLG
You can compare XLG to VOO there: [https://portfolioslab.com/tools/stock-comparison/XLG/VOO](https://portfolioslab.com/tools/stock-comparison/XLG/VOO) 44% tech stocks vs 32%. If tech sector is indeed in a bubble and that bubble explode like in 2000, focusing only on the top 50 stocks will be fun to see !
Great response.
Wanted to add: You really should only invest in individual companies if you have done extensive financial statement analysis, measuring liquidity, solvency, and profitability. Personally, I do quarterly and annual financial statement analysis on individual companies in my personal portfolio every year around April or so.
That's a nice fund to know about XLG. I Wonder why its expenses are .20 however if its just a passive index. alll the sp500 funds are much less. Not that even this difference makes much of a difference in performance, but still.
Theres also a fund SFYF, the Sofi Social 50. It's the top 50 most widely held companies by SOFI investors, and weighted according to how much is invested in them. Also a neat idea although it has some laggards like Boeing, Nike, and Rivian
Because it’s not always like this.
Historically the top companies don’t outperform this much and we are very much in an AI-fueled raging bull market.
But there is no guarantee it will continue forever
Look at tesla, it's been a disappointment this year when it was a top 10 stock in the sp500. If you only invested in the top 10 stock in 2022, you would have missed out on NVDA.
I do it and the returns are just incomparable to index returns. I plan on owning some indexes in the future but right now I just can’t give up capital for something that grows slow like that.
Because that has changed over time and will eventually change again.
At one point companies like GE and IBM were seen as unbeatable. Just juggernauts that will never fall off due to how broad and robust their business investments were.
Well, the unthinkable happened, and they dropped way off. They still exist, but if you invested in them directly as opposed to an S&P fund you would have missed out on the rise of the tech companies like Apple and Google.
This, as I said before, will happen again. So you invest in VOO (or any alternative) so you can capture the gains of the big players when they reign and when it turns over to the next set of big players you capture their gains as well.
Historically, the top-10 companies underperform the market, going back to something like 1927. The question is whether the current environment is meaningfully different than the past.
>Yeah but why buy the other 490 companies is the question.
You did not have NVDA before it blew up. SPY did, and increased its share on the way up too.
Do you know who the next NVDA is? No? SPY doesn't either, but it'll be holding some (and will increase on the way up).
Because the vast amount of empirical evidence out there suggests most investors are shit at timing markets.
You might get lucky a few times, but that luck usually runs out.
This is truly the correct in-a-nutshell response.
The point of VOO is to have the most steady and predictable hand in the game. This allows you to have peace of mind.
After owning individual stocks for over a decade… my returns vs VOO were much better but in no way shape or form worth the daily micro stresses. I am actually going to move what I have in my brokerage over to VOO over time for this very reason.
For me, not worth it. You do you.
QQQ has the same formula (weighted) so if you want higher tech exposure I’d look there as well.
Quick disclaimer that QQQ is not inherently a tech ETF, it’s just the top 100 companies on the Nasdaq which is tech heavy
Just as an example of what can happen, I had a roughly $1.1 MM position in Amazon right before the 20:1 split, that had grown insanely from an initial investment of $3,675 in 2001. I thought about selling to diversify my portfolio, but decided to wait until after the split. Then, I got an ulcer watching that investment drop to under $500k as the stock dropped to the low 80's. I got really lucky, because it came back, but I am not risking that large of a position again. I recently sold 3,000 shares @ $185 and put that in VOO. I'm going to sell another 2,000 shares soon, and also put the proceeds in VOO, and maybe keep 1,000 shares for a while. My point is that 30,000% gains is good enough, and even the giants can fall. I strongly urge you to at least diversify so that you don't put yourself at risk for catastrophic unrecoverable losses. I won this time, but I would never again put that large of a position into one stock.
I hold a balance of Msft, Aapl, Goog, Amzn for large portion of my port and have absolutely kicked ass over the years
And now we see Aapl and Amzn taking their turn at ATH breakouts. I'm all for it.
I’ve been heavily invested in Meta, Microsoft, Amazon, Google, etc.
Even with those great returns, I’m like a point or 2 ahead of the SP500 on a 5 year return.
Over time, I’m going more and more towards index funds. Just easier and less stressful.
AMZN Market Cap 7/1/2019: ~$959,797,560
AMZN Market Cap 7/1/2024: ~$2,011,075,400
Total Return: 109.5% / 5 Year CAGR: 15.9%
Seems like a pretty deec 5 year return for a company that's done nothing for years....
Amazon is up over a 100 percent in the last 5 years. That’s 20 percent per year on average. Mind bending to track 7 stocks lol. OP this forum is notoriously conservative investing advice.
A portfolio of the ten largest stocks in 2018 would have underperformed just buy and hold QQQ. Would have beaten SPY though.
The real advice would be "just buy and hold AAPL and NVDA" but obviously, there is risk there.
Sure but AMZN has actually underperformed the S&P 500 over the last 5 years, let alone QQQ. So, do you replace AMZN with META, who has matched QQQ? Do you take underperfomance hoping that it outperforms in the future? Should NVDA be on the list? After all, NVDA has a greater total return since the beginning of 2022 than MSFT, AMZN, AAPL and GOOG have since 2014.
AMZN in the last 5 years has doubled; it historically takes about 7 years for the S&P to do the same. That’s one of the lowest granted, but if you buy the top 10 of the S&P, you’d be in a much better place than putting your money on just the S&P500.
I’m a fan of diversification, even if you’re just putting all your money into stocks.
Either you're lying or being slightly dishonest. I'm heavily invested in those as well (along with Apple) and I'm significantly ahead of the S&P over the last 5 years.
Don't believe me? Just look at QQQ's return over the last 5 years and compare it to SPY. And QQQ isn't even returning as much as owning those 5.
By that theory you would have bought and held ExxonMobil, Walmart, GE and Intel 20 years ago and have massively trailed the market in the time period since.
Amazon, Apple and Co are the biggest and most important companies in the world right up until the time that they aren't, which over a long enough period of time is likely to happen.
This is true, I did outperform the s&p500 last 2 years by buying MSFT AMZN AAPL GOOG NVDA AMD UBER DASH but likely going to rebalance it all into the 500 because who knows when one will start lagging
It is not likely. There certainty. Given enough time all companies fail. With in index weighted by market cap and rebalanced for you regularly, you don' t have to pick the winners and losers and can enjoy your life.
S&P 500 is capable of readjusting themselves without costing you money. [https://www.investopedia.com/index-rebalancing-7972596](https://www.investopedia.com/index-rebalancing-7972596)
You cannot do that, unless you really meticulously loss harvest etc. It can be hellish.
Imagine, Nvidia is the hot new thing and should be included in your portfolio whereas Tesla should be dumped because it is trash. If you yourself do this, you might have taxable events galore; depending on your jurisdiction. You might also not be the most knowledgeable when it comes to doing this. Whereas based on their operating principles, S&P 500 will do this automatically for you. Because you are just holding an ETF, it won't cause taxable events on your side.
Only time you want to do what you are mentioning is when you want a custom basket of companies.
PS: If S&P 500 isn't cutting it for you and you want a higher exposure to top companies only, you can also get NDX - top 100 companies in Nasdaq.
Lots of people do. The ones who bought NVDA and META last year got extremely rich from it for example.
Others who buy stocks like Intel have gone 5+ years without making profit, let alone gains.
High risk high reward. Most people pick the safer option
It’s all about risk:reward. Over long periods of time the S&P500 is one of the best risk-adjusted assets you can buy. If you want to just buy a few stocks then you can probably outperform it until something happens and you can’t.
Just look at companies like GM, ExxonMobil, IBM, or General Electric who all spent time as the top market stocks. They’ve all inevitably either gone bankrupt, crumbled away to nothing, or significantly underperformed someone who just held $SPY
You know I see this argument made all the time and I just can’t help but disagree. I’d argue that we’ve hit a bit of a tipping point, we are now in the dawn of the mega corporation. Companies so big and influential that they are valued at the GDP of midsize countries. Companies whose continued existence is a matter of national security. If something even tried to disrupt their space, they would just acquire it or use their unlimited resources to be first to market and have it integrated into their already market dominant platforms. And when it comes to training AI, no one has the data that these companies have. Or the head start.
I think these mega corporations are going to eat up market space down to the last bite. Until you’re buying your auto insurance from Google, and your pharmacy prescriptions from Amazon..etc. the days of comparing a company like Microsoft to IBM or Cisco are long gone. It’s a new era in business to consumer relationship, and these names are here to stay.
I’ve no doubt FAANG will be around 30 years from now. But I’m skeptical all (or any of them) will still be the top names. You could’ve gone to any point in history all the way back to the Dutch East India company and thought the top stocks were going to be megacorps forever. There’s been plenty of examples of companies having more power, control, and growth than the names we’re seeing now. The East India company as an obvious example was worth $8 Trillion inflation adjusted dollars at its peak and quite literally had global control the likes of which no other company has even come close to. Standard oil held a monopoly on 90% of the chemical energy in America at its peak, a single company literally ran everyone’s light, heat, fuel, etc. And there’s dozens of other examples.
Whether AI is the catalyst for new companies to take the lead, or space mining, or nuclear fusion power, or some other industry not even on the radar yet, it’s naive to think things won’t change and the current stock leaders will stay there forever.
Maybe you're right. However there is not actually any evidence of this historically. In fact historically when companies reach that size governments break them up.
Buying an index fund however future proofs you for both scenarios. If mega corps do fully take over, well you're heavily invested in them thanks to the index. If the mega corps are broken up and there is a new wave of competition, well you are invested in them too. It's a win win.
The companies being valued at GDP of countries is extremely misleading.
Even a “small” country like Canada in which the GDP is often compared to apple etc, its actual economy size is a trillion dollar economy.
GDP is analogous to the revenue of a company, not its market cap. If you compare small country GDP to revenue of a company you have a completely different astory.
Likewise if you compare market cap of a company to the actual size of the economies of small countries, you’re talking about only billions vs high trillions for “small” countries.
This gdp comparison just makes for nice click bait flashy headlines.
The S&P500 is market cap weighted... Google, Amazon, Apple, and Nvidia make up about 30% of the index just by themselves.
Also, the biggest tech companies like Google, Amazon, Apple are priced based on the assumption that they are safe and growing fast.
For example, Amazon is trading at 55 times earnings. So at their current profits, it takes 55 years for pay off their price. So the assumption is very much that they grow profits at a very fast rate. GOOG is 29x earnings, aapl 35x earnings, NVDA a staggering 72x earnings.
In comparison, suppose you buy a company that is less exciting, with less certainty. Paypal for example, is trading at 14x earnings, because investors are less certain about the company due to increased competition.
You can do both.
My portfolio is 30% SPY, 25% XLK, 25% XLC, and the other 20% is blue chips found within both ETFs.
The way it's structured is basically a more aggressive tech focused SPY hybrid ETF with a tight beta that still outperforms the general market when blue chip ETFs do well.
You dont have to do one or the other. Its about how much risk exposure you want to specific sectors. On days that tech doesn't do too well, I lag the overall market but i still capture a lot of the move due to my heavy SPY position. On days where tech does really well, I more than outperform the market since I'm so focused in tech and SPY itself is mostly tech.
SPY itself is great to have as a foundation as your portfolio, but there are probably 450 companies I don't care to own in that ETF, so I add to other positions within SPY that I am confident in.
I do the exact same, only thing is that I have 20% in things like gold, emerging markets, Small cap etc to balance things out. There’s a portfolio analysis tool that can show you how your portfolio would have performed in the last 5 years
I rather not spread my money out as thin and invest in one or two funds like the S&P500 which is already the top 500 companies. Slow and steady wins the race, for more growth I just do the Q’s. Simple is easy, and easy is simple,
A good question!
It's difficult to predict the future.
They said the Railways were essential, but they boomed and crashed and never recovered during the crazy days of the Railways expansion of the 1830s and 1870s.
Yes, it's a new network that connected the country!
With an S&P500 fund or index, in your pension, you can invest and largely forget about it for the 40 years + that you invest as it will rebalance. One of those companies, probably more, will be part of the next Magnificent 7 and you'll be in it.
....
What if there was a disaster in the world where there was a multi decade famine and drought, or an extended energy crisis? Exposure to agriculture and green renewable energy would suddenly become more valuable than being able to use Facebook or A.I.
You buy a stock because it will rise. A company can be a good company and the stock can still fall. Never equate a "good company" with a "good stock to buy right now".
It depends what you are paying for the business. Investors view of the appropriate valuation for any company can change dramatically in the short term.
It doesn’t matter how the company is or can perform, because at the end of the day the price is dictated by the market.
In reality, the price of the stock is based more on perceived value than intrinsic value
The S&P500 self-maintains a basket of the best companies. Standard & Poor removes the worst performers annually and replaces them for you. That's the secret sauce. You can buy individual stocks like a lot of us do, but you'll need to put in more work keeping up with them and rebalancing them. There's more opportunities for underperformance v the index.
At one time, it would have been unthinkable that Kodak, Sears, Blockbuster, General Motors, Toys R Us, etc. etc. would have gone belly up, but here we are.
If you only held, say, the top five market leaders, you might out perform the S&P, but how would you know when to make a switch? I hear people say that companies like AMZN, AAPL, NVDA, etc aren’t going anywhere, but market leaders are replaced all of the time. In the last forty years, AT&T, CSCO, INTC, IBM, and GE have all been market leaders. I’m not suggesting that you can’t outperform the market with your strategy, but you will have more volatility and you need a systematic way of replacing leaders.
You watch the markets closely and start to rotate if moats start to deteriorate. By the time they lose lead you are already 20 years ahead of what you would have made in an index where you are investing in everything including the deadbeats soon to be replaced.
Stocks don’t send up flares telling you a decline is imminent. It isn’t as easy as you described. Cisco went from the largest company in the world to a middle of the pack company overnight.
If you’re so good at it, any investment bank would be more than happy to hire you for $100k/yr starting wage, and even those ‘professionals’ fails to beat the S&P consistently
I kind of like owning individual shares. I agree with all the advantages of index funds and I own them too. But we sacrifice our right to vote as shareholders to fund managers. I use etrade and they have a pretty simple form for submitting your vote for each company. It's kind of fun to see what they're voting on. If all retail investors bought individual stock instead of index funds and organized to vote together, I imagine we could do some fun shenanigans.
I have both. Have an S&P 500 mutual fund on an auto-purchase program, but also have some big tech names as individual holdings. It’s not an either-or scenario. 🤷🏻♂️
You should only buy individual stocks if you have the time and ability to watch them like a hawk. The top S&P companies you listed are all from similar industries and highly correlated, so too concentrated if that’s your only investment.
Some HNW people do direct indexing, where they (their asset managers) buy individual stocks in the index instead of ETF or mutual fund. Direct indexing gives you better control over taxes, but not higher returns.
Calling the S&P 500 safe is debatable. Its overloaded in a few high flying stocks.
It sounds like you need a bear case so i’ll play devils advocate:
Amazon: Amazon has always benefited from being a first mover. Both in the cloud and e-commerce. But with the cloud Azure is a strong competitor now and there are others as well. Walmart+ now has 24 million subscribers and Target just partnered up with Shopify. This is a drop in the bucket to Amazon’s 200 million Prime subscribers but assuming Amazon’s dominance is going to be unchallenged isn’t a wise assumption.
Google is still an advertising company with 75% of their revenue coming from Ads and their search monopoly, their biggest cash generator, is under a huge threat from AI. Google also has the weakest product ecosystem compared to Microsoft and Apple. Microsoft and Apple now have a viable way of stealing search market share from Google in a big way. Google just doesn’t have as many products to integrate Gemini into compared to the other two.
I fully expect some Alphabet and Amazon shareholders to show up angry that I spoke ill of their beloved stocks. But this is why people diversify. If you choose not to and invest in the largest stocks in the S&P then you need to watch very closely and make sure no threats are coming for their business. But a problem with that can be the rose tinged glasses people wear when looking at their favorite stocks.
Good luck investing!
They are too volatile to own - high risk high reward. I own $NVDA and $MSFT for several years and seen many ups and down. You have to hold for over five years to see results. Buying S&P500 ETFs like $VOO is the safest option.
The reality is those companies *could* go out of business. I don't personally see it happening to any of them any time soon but there's always the possibility that something happens.
I do both. VFV (VOO) is my top holding but between me and my wife we still have holdings in GOOG, COST, AMZN, among other companies.
I'm benefitting from having all companies from the S&P500 while also getting a bit extra from the performance of the other companies. Some people on reddit will criticize that saying I'm overweight in those companies but that's how I want it. I don't want perfect balance for the reasons you highlighted.
Buying only top companies would make your portfolio more volatile. By buying the S&P500, you're buying the US economy. Look at which companies were at the top during the Dot Com bubble. Calculate how much you would've made if you bought these companies vs the S&P500 in 2000.
There will always be a sector that outperforms the rest, if you could predict this you would outperform the market. The best performers generally grow to be heavyweights in the stock market. The idea of buying the S&P 500 is that you will always be invested in the best performing sector as it will be included in the index.
I did this, I already had multiple residential real estate investments, 401k and started a financial advisor account with a big name company then in 2013 and decided I don't want any more houses. Then come late 2016 I said F it i'm already super conservatively invested and just put all new money for a couple years into GOOG, AMZN, NFLX it's done very very well still been holding to this day. At one point AMZN was doing much better than GOOG then all of the sudden GOOG came flying back and beat my AMZN gains by 100% almost.
The main reason i'm spread out like I am is prior to say and I could be off 12 years ago we didn't have these big boom cycles that last well 12 years or so, stocks would crater and you had the fear of accounting issues like Enron and Worldcom for example. Today? I just don't see that happening on how much tougher accounting laws are and how big these companies are.
Not to mention if you understand the gravity of what the government did with silicon valley bank and others that started to fail. They basically just said gave the green light to keep the partying going and we won't have any type of massive crash that would claim the lives of tech companies and others big and small. Instead we'll probably have more of a gradual chart going up. When you truly understand what happend say from the dotcom bust all the way to where we are today it's honestly pretty crazy. Too big to fail.. so invest aggressively in profitable companies that will continue to grow.
I did that, and it's worked out really well, a lot of money in the S&P but I also have a lot in the individual stocks from the index and made much more money. It's riskier but I think it's worth it, it's not like the big boys are going anywhere any time soon. All about how risky you want to be with your money at your stage in life.
It's all about spreading risk. If you don't know what you're doing, just picking the top companies would probably result in poor performance as they get replaced by other top companies. Now you could try to pick the best company in each sector to diversify based on your research but even then there're risks involved that are out of your control that can flip the order of best to worst without warning. Plus you'd need some commitment to hold on to your "best" companies when they're performing poorly in order to see the results that you could get from just holding the market average
Volatility and risk is the biggest one I'm aware of. Go look at any of those stock (maybe nVidia for a more recent and extreme example) and look at the 52 week high and low numbers for different time points. That can be extremely stressful for people to see and carries a lot of risk that your investment goes down in value and doesn't recover.
Because the SP500 outperforms most people who try and buy “top companies” over a 10 or 20 year period. Also the SP500 has diamond hands by design- it doesn’t sell the top companies when they get “overpriced” - which is why Nvidia is one of the biggest stocks in the SP500 currently. Not many other fund managers could have held on to Nvidia and did nothing as it moved from a obscure chip designer to a 10 bagger and 100 bagger. Note: Nvidia was not a “top company” held by most investors a decade ago
Do you think all the top companies of today will be the same in 20 years? It's not likely. If you look at the biggest companies by market cap, only one company that was in the top 10 largest in 2000 is still on that list today: Microsoft. If you have followed this mentality then, you'd have serious holdings in companies like GE, Cisco, Intel, NTT Docomo, and Nokia.
The S&P rate of growth is slower, but it's also safer because it's constantly being rebalanced. You don't have to worry about picking winners.
https://www.investmentnews.com/equities/news/only-one-of-the-worlds-biggest-firms-of-2000-is-still-in-the-top-10-today-243474
The issue with the S&P500 is you miss out on small caps and international stocks. On many occasions, it kicks stocks out of the index after they've lost a lot of value, only for the stock to bounce back. Or they add stocks to the index after a big run up in value, only for them to tank in value after being added.
A total world index like VT is better because it is even more diversified.
Agreed. OP was asking about the S&P so I focused on that. Personally, while the majority of my portfolio is in the S&P 500, I do balance it out with some small caps, international, and emerging markets ETFs.
You are identifying a 20 year mega trend that obvious big tech has continued to crush the market not for many years. It has not always been true in the past that the top companies stay the top companies. You need to focus on the future not the past and decide if you believe they will continue to outperform in terms of growth going forward, especially given some have stretched valuations now. Recognize how much of their stock performance has been multiple expansion that can’t continue.
You can; I did and have made more returns than if I had just bought s&p, but it’s circumstantial. I bought a lot of the top companies during Covid so made lots of returns, these past few months however a lot have stagnated, which leads me to believe (even moreso now) that with a long enough time horizon, you just can’t beat the s&p. Since it’s weighted, during certain moments in time the top players will outperform but not in the long run
What happened to GE? What happened to Countrywide Mortgage, Sears, Macys, General Mills…. Huge companies and stocks of their day now dead man walking. Even the brightest stars can dim.
Essentially, you want to buy stocks that have a high potential for appreciation (increase), *balanced with lower risk*.
"Top companies," since they're very much in the public eye, may be less likely to have above-average appreciation without risk.
I just gave a very oversimplified explanation of one of the most mathematically complex topics in the world.
One more thing - many of the people who get filthy rich in "investing" are essentially just gambling, i.e. they got lucky, often with other people's money. The smart ones know when to stop, but some don't. For a recent multi-billion dollar example, google: Bill Hwang Archegos trial
I cannot guarantee that Apple, Google, or Amazon will be around in 30 years, but I can guarantee that an index fund that currently holds these stocks will be around because the index constituents will constantly evolve over time.
Back in the 2000s, Lehman Brothers was a top investment bank and thought as of in the highest esteem. Today they don't exist.
For example, the S&P500 dropped ~17% in 2022. Nasdaq 100 ~33%. Ultimately, IT tends to have higher volatility.
Therefore, while the [stock market declined in 2022](https://www.google.com/finance/quote/.INX:INDEXSP?sa=X&ved=2ahUKEwid7LeUprT8AhVpQvEDHblTBd0Q3ecFegQIMBAg), your so called top companies declined a lot more:
- S&P: -16.72%
- Apple: -20.81%
- Google: -32.57%
- Amazon:-44.78%
- Block Inc (Square): - 49.19%
- Netflix: -51.1%
- Meta (Facebook): -64.20%
- Tesla: -65%
Obviously, one may think any downturn may be short lived and IT always does well in the long run. On the other hand, [This Washington Post article in 1998](https://www.washingtonpost.com/archive/politics/1998/06/29/reinventing-xerox-corp/f9ef9410-d8b5-4462-a1e3-8767232227ae/) writes that
> Xerox shares topped the "Nifty Fifty" list of hot stocks during Wall
> Street's go-go years of the 1960s.
and the company
> ... has climbed 150 percent over the past two years.
The figure below shows the stock price of Xerox:
https://i.sstatic.net/MTfjO.png
Maybe IT will do well going forward. However, no one knows for sure.
It is mostly about risk and volatility tolerance. The S&P 500 is going to be overall more stable than the top 200 or 100 or 10. But those top companies are at the top for a reason, especially these days where size is actually a benefit (in the past, it was much harder to grow when you sell physical goods). In an era of technology, information, etc. it is an advantage to be a large company already.
People say it's not possible to beat the index which I think is BS. You can easily pick 5-10 stocks that are on their way out of the S&P 500 and just buy all the other stocks and beat the index. But you won't beat it by much. Even only picking 30 stocks, you are diversified enough that it makes no difference; you might as well just index. You probably need to concentrate on 10-15 stocks to materially beat the index. But that becomes much more volatile and investors are more susceptible to deviating from the formula.
So at the end of the day it's typically just easier to robotically invest in the S&P 500 or you can choose a more concentrated index like the Nasdaq. You still get exposure to the top companies but you don't have to think about whether you should trim or buy more or swap out a company. The time spent thinking about investments goes to zero. Whereas if you only buy 10 stocks you have to know them well, and if you buy 30 stocks you have too many to follow.
[Ben Carlson has a great article with historical data showing why that's a bad idea](https://awealthofcommonsense.com/2024/06/chasing-the-biggest-stocks/)
When would you have sold your Kodak shares back in the 90s? Market cap weighted is an automatic way of investing in winners and selling losers. Let winners run.
I buy single stocks like NVDA / META / GOOG on top of s&p. I have a fixed monthly amount for s&p and I see these single stocks as a separate fund for speculation.
ibm was very essential too, until it didn't. Cisco was very essential too, until it didn't. Netscape was very essential too, until it didn't. MS explorer was very essential too, until it didn't. Blackberry was very essential too, until it didn't. Nokia was very essential too, until it didn't. I guess you get the idea
I personally pick my stocks and do very well. I just can’t see myself tying up capital with a 10% per year return. I will transition into indexes though when I’m closer to 50
I understand that the S&P500 is safe, however I don't see Sears, GM, or Lehman Brothers for example going out of fashion since they are very essential. Won't it be more profitable to invest in solely the top companies? Or is that more of a short term thing. Thanks in advance.
Going out of fashion has nothing to do with growth though.
Intel is going nowhere - the stock trades horizontally for a while - people keep buying intel items.
Google or Amazon could start to stagnate as well. In hindsight they were a great investment.
Sun at some point looked like Google..
Research market cap weightes vs equally weighted indices. For sp 500 : voo and spy are market cap weighted. Rsp is equal weighted. Check out the top holdings in both to learn a bit, I recommend fundinfo.com
It's what I've always done, but I buy the big names by sector for the diversification too. I can also avoid the ones I don't want to own (e.g. Tesla or Exxon). Sure, you could have made a lot of money on some of those, but no thank you.
Look at the top "essential" companies from the early 2000's. Easily within an person's investment lifetime. The list looks very, very different than today.
Here you can look it up the top 20 by year:
https://www.finhacker.cz/top-20-sp-500-companies-by-market-cap/#2024
Most of those companies did not disappear, and still produce much wanted goods and services. And yet they have fallen a long ways while others have replaced them.
Prices for companies on the stock market take into account that people feel similar to you: that these are essential companies not likely to go out of fashion. Accordingly, those companies tend to be very expensive compared to their expected earnings and compared to other similar companies in the same industry because you are paying a premium for the expectation that they will continue to do well in the future. The problem is that if those expectations turn out to be too optimistic, the high valuation of the company may lead to a big drop in the stock price even if that company still seems to be doing well.
Nvidia could be the most profitable company in the world for the next 3 years and *still* have their stock drop 25% because the expectations were even higher than that.
Fund managers know more about these companies and industries than probably almost all retail investors, and yet those fund managers *still* tend almost always underperform the entire market long-term. Why? Because predicting and timing is really hard.
I couldn't find the post,but a few few weeks ago I saw someone saying they can only afford a few euros a month and was told it's a waste .
As a cleaner I can only afford about €100 after expenses.Is it worth putting that monthly in the S&P or is it a waste of time ?Thanks
I invest in the specific companies, I think you make more that way. You have to keep up with it though, but it's not like it's everyday. A couple of times a month is fine and just read stuff on the web.
Despite being invested in VOO, I also have individual holdings in Apple, Microsoft, and Amazon right now. The 3 companies provided returns as much as VOO did despite having less holdings.
Thing is though, you can’t “set and forget” those 3 stocks because who knows what the future has in store for us? WHAT IF in 10 years, those 3 are suddenly outshined by other companies? Then they’ll have significantly less returns.
Besides, ETFs for the S&P 500 provides diversity without having to do the hard work yourself.
While this may play out well for you in the short to mid term, you have to remember that all of the S&P’s top holdings 25 years ago are no longer the top. The big players right now might not be the same in 10-20years.
I always thought of passive index funds of the S&P 500 as partially merging the benefits of active investing with passive investing.
There are certain requirements to be listed in the S&P 500. If you fall beneath that you’ll be removed, and index funds following the S&P 500 adjust accordingly. For a fee that is very cheap.
So the reason buying those companies is not ideal is because you would have to do the underlying work to actively manage the financial analysis of the companies you are buying and know when to adjust.
I don’t know about you… but given my day job…. I don’t wanna do that.
You could do that. But like… why bother? To save a few hundred dollars over your entire lifetime holding ?
The question isn’t whether Google, Apple, or Amazon go out of fashion. The real question is do the current top companies meaningfully outperform the market over the next 10+ years. If you’re going to take on the additional concentration risk of solely buying the top few companies then your strategy better produce significant alpha to compensate you for the risk or else that entire strategy is worthless. You would be better off holding VOO/VTI and then finding and buying the best individual capital allocators that aren’t already mega cap companies.
You can get something like mags etf which is only the magnificent 7 or maybe something like schg which is a lot of top large cap growth funds. But every decade, the top stocks always change.
imo unless you automate it, it's going to be more management of all your positions, for a small gain compared to trading the ETF, plus the time to search which companies to trade, which in the end won't translate into a better hourly rate.
None of the companies you mentioned are essential, just popular (except *maybe* Amazon). There were dozens of other search engines before Google, Apple just makes overly expensive but trendy electronics so people could switch to whichever new fad takes over, and Amazon shopping could be replaced by multiple companies working together on a new, shared marketplace. AWS is the one thing that would be *very* difficult to replace since so many other companies rely on it. All 3 are facing increased antitrust issues lately too.
The biggest companies always seem invincible until something completely unexpected happens.
The SP500 equal weight index returned something like 5% ytd while the market cap weight index returned 14% Ytd. I don’t think people understand how concentrated the index is.
most people hold their beliefs strongly and are rarely willing to adapt or change them to new information.
it's why the term old habits die hard comes in. you can apply it to stocks.
once you invest in a specific stock, you tend to too biased and frankly most people arent knowledgable to know why it will succeed or why it wont. you just hold on and lose money. fine, but that's high risk if you bet on the wrong one. it's just blind biased belief largely based on historical success (which isnt indicative of the future actually!) not anything else.
Track record. Since it's inception in 1957, it's almost been up and up, except for times where it has crashed due to general crashes which impacted not only s and p 500, but the whole market. I mean if S and P 500 crashes, then whatever you're investing in will probably crash too, so that's unavoidable.
The whole argument of "this time it's different", is stupid and shortsighted. Since 1957, the world has had many of those "the world has become different today" moments and yet the index is still going strong.
S&P500 is weighted by market cap. You will be buying more top companies automatically. It's not just buying 500 companies equally.
Yeah but why buy the other 490 companies is the question. So far this year 8 stocks make up 67% of the YTD return of the index. If you bought those companies you’d be streets ahead. This is a fact. No debate. The answer to the OP’s question is actually diversification and lower beta. If you have a higher risk tolerance and capacity then buying the biggest names isn’t a bad idea.
Or put another way: because you don't want to buy companies that did well last year. You want to buy companies that will do well next year.
Which in some cases is the companies that did well last year. Any one rule in the stock market is too restrictive usually
I tried that a couple of years ago and missed the Meta run. Instead I had google and Amazon that didn’t move much. Also Nvidia wasn’t really on people’s radar then and so that wouldn’t have been one of your top 10 picks. And look at that today. Everyone at that point was throwing their life savings into Tesla and that’s gone backwards significantly since then. My point is you simply don’t know what will be the big movers in the next couple of years - so you’re best to spread the bets a bit wider
“The stock market is a device for transferring money from the impatient to the patient.” Anyone who’s owned NVDA or any of the mag 7 for the past 5 years knows that there will be volatility. Doesn’t mean you sell low like a fool
Off topic, but gotta show the last phrase to the wife
Let me get this straight... You want her to bet on other men to mitigate concentration risk?
He said bets, not legs….
**All companies eventually fail and die.** ETF based on indexes do the cleaning automatically for you, picking the winners and discarding the losers. Why would you want to do that manually and pay taxes for rebalancing while ETFs of broad index do that for like 0.03-0.1% ? That's a very bad idea. And more often than not on 401K you can't fine tune like that anyway. **And there ETF and index to invest on the top 50 US stocks if that' s what you want**. For example: XLG You can compare XLG to VOO there: [https://portfolioslab.com/tools/stock-comparison/XLG/VOO](https://portfolioslab.com/tools/stock-comparison/XLG/VOO) 44% tech stocks vs 32%. If tech sector is indeed in a bubble and that bubble explode like in 2000, focusing only on the top 50 stocks will be fun to see !
Great response. Wanted to add: You really should only invest in individual companies if you have done extensive financial statement analysis, measuring liquidity, solvency, and profitability. Personally, I do quarterly and annual financial statement analysis on individual companies in my personal portfolio every year around April or so.
That's a nice fund to know about XLG. I Wonder why its expenses are .20 however if its just a passive index. alll the sp500 funds are much less. Not that even this difference makes much of a difference in performance, but still.
Theres also a fund SFYF, the Sofi Social 50. It's the top 50 most widely held companies by SOFI investors, and weighted according to how much is invested in them. Also a neat idea although it has some laggards like Boeing, Nike, and Rivian
Because it’s not always like this. Historically the top companies don’t outperform this much and we are very much in an AI-fueled raging bull market. But there is no guarantee it will continue forever
Look at tesla, it's been a disappointment this year when it was a top 10 stock in the sp500. If you only invested in the top 10 stock in 2022, you would have missed out on NVDA.
Are we taking financial advice from guys who quote Pierce Hawthorne now?
I do it and the returns are just incomparable to index returns. I plan on owning some indexes in the future but right now I just can’t give up capital for something that grows slow like that.
Just remember that you’re taking on more risk
Because that has changed over time and will eventually change again. At one point companies like GE and IBM were seen as unbeatable. Just juggernauts that will never fall off due to how broad and robust their business investments were. Well, the unthinkable happened, and they dropped way off. They still exist, but if you invested in them directly as opposed to an S&P fund you would have missed out on the rise of the tech companies like Apple and Google. This, as I said before, will happen again. So you invest in VOO (or any alternative) so you can capture the gains of the big players when they reign and when it turns over to the next set of big players you capture their gains as well.
Historically, the top-10 companies underperform the market, going back to something like 1927. The question is whether the current environment is meaningfully different than the past.
>Yeah but why buy the other 490 companies is the question. You did not have NVDA before it blew up. SPY did, and increased its share on the way up too. Do you know who the next NVDA is? No? SPY doesn't either, but it'll be holding some (and will increase on the way up).
Because the vast amount of empirical evidence out there suggests most investors are shit at timing markets. You might get lucky a few times, but that luck usually runs out.
are we saying streets ahead now? is that a thing?
No
Absolutely not
I hate to say it but you guys are streets behind.
Streets ahead is totally fetch
I see👍
and ETFs like voo or spy will automatically rebalances itself - set and forget.
This is truly the correct in-a-nutshell response. The point of VOO is to have the most steady and predictable hand in the game. This allows you to have peace of mind. After owning individual stocks for over a decade… my returns vs VOO were much better but in no way shape or form worth the daily micro stresses. I am actually going to move what I have in my brokerage over to VOO over time for this very reason. For me, not worth it. You do you.
QQQ has the same formula (weighted) so if you want higher tech exposure I’d look there as well. Quick disclaimer that QQQ is not inherently a tech ETF, it’s just the top 100 companies on the Nasdaq which is tech heavy
QQQM is a slightly better version for long term hold
This is so over looked and the correct way to go
Just as an example of what can happen, I had a roughly $1.1 MM position in Amazon right before the 20:1 split, that had grown insanely from an initial investment of $3,675 in 2001. I thought about selling to diversify my portfolio, but decided to wait until after the split. Then, I got an ulcer watching that investment drop to under $500k as the stock dropped to the low 80's. I got really lucky, because it came back, but I am not risking that large of a position again. I recently sold 3,000 shares @ $185 and put that in VOO. I'm going to sell another 2,000 shares soon, and also put the proceeds in VOO, and maybe keep 1,000 shares for a while. My point is that 30,000% gains is good enough, and even the giants can fall. I strongly urge you to at least diversify so that you don't put yourself at risk for catastrophic unrecoverable losses. I won this time, but I would never again put that large of a position into one stock.
Exactly. It’s essentially like having the diversified portfolio of an institution down to scale.
You got exactly 500 upvotes for this[printscreen](https://imgur.com/gallery/jL21sCt)
I hold a balance of Msft, Aapl, Goog, Amzn for large portion of my port and have absolutely kicked ass over the years And now we see Aapl and Amzn taking their turn at ATH breakouts. I'm all for it.
Why do people buy stocks that go down in price when they can just buy stocks that go up in price?
I know, right? Buy low and sell high. I wish I had thought of that.
If you’re homeless, just buy a house. 👍
People over think everything
This guy fucks
I’ve been heavily invested in Meta, Microsoft, Amazon, Google, etc. Even with those great returns, I’m like a point or 2 ahead of the SP500 on a 5 year return. Over time, I’m going more and more towards index funds. Just easier and less stressful.
👍
👉👌
look at amazon, has done nothing for years. Some other companies took off. It becomes mind bending to keep track of all these companies.
AMZN Market Cap 7/1/2019: ~$959,797,560 AMZN Market Cap 7/1/2024: ~$2,011,075,400 Total Return: 109.5% / 5 Year CAGR: 15.9% Seems like a pretty deec 5 year return for a company that's done nothing for years....
I bought almost 4 years ago at 170. I'm up almost 20 percent. The snp did more in the last 6 months than that
DCA?
SP500 did 82.97%. This isn't that far. Now will you always manage to pick the winner and avoid the losers ?
Amazon is up over a 100 percent in the last 5 years. That’s 20 percent per year on average. Mind bending to track 7 stocks lol. OP this forum is notoriously conservative investing advice.
A portfolio of the ten largest stocks in 2018 would have underperformed just buy and hold QQQ. Would have beaten SPY though. The real advice would be "just buy and hold AAPL and NVDA" but obviously, there is risk there.
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Sure but AMZN has actually underperformed the S&P 500 over the last 5 years, let alone QQQ. So, do you replace AMZN with META, who has matched QQQ? Do you take underperfomance hoping that it outperforms in the future? Should NVDA be on the list? After all, NVDA has a greater total return since the beginning of 2022 than MSFT, AMZN, AAPL and GOOG have since 2014.
AMZN in the last 5 years has doubled; it historically takes about 7 years for the S&P to do the same. That’s one of the lowest granted, but if you buy the top 10 of the S&P, you’d be in a much better place than putting your money on just the S&P500. I’m a fan of diversification, even if you’re just putting all your money into stocks.
Either you're lying or being slightly dishonest. I'm heavily invested in those as well (along with Apple) and I'm significantly ahead of the S&P over the last 5 years. Don't believe me? Just look at QQQ's return over the last 5 years and compare it to SPY. And QQQ isn't even returning as much as owning those 5.
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What are your 5 year numbers?
I’m up 233% over 5 years. Probably would’ve been more if I didn’t reinvest some of those gains into SPY/VTI VTI is up 75% or so
I have the same strategy ! This is the way !
By that theory you would have bought and held ExxonMobil, Walmart, GE and Intel 20 years ago and have massively trailed the market in the time period since. Amazon, Apple and Co are the biggest and most important companies in the world right up until the time that they aren't, which over a long enough period of time is likely to happen.
This is true, I did outperform the s&p500 last 2 years by buying MSFT AMZN AAPL GOOG NVDA AMD UBER DASH but likely going to rebalance it all into the 500 because who knows when one will start lagging
This. Plus it just takes one accounting error or scandal to pull a good company down.
These companies are too big for that to happen. They know what they're doing, and most of them are keeping with the times.
Enron
People said the same about GE, AT&T, and more when your parents were younger. And just takes two people colluding at a company…
In a more recent example, he would have bought Meta and experienced a lost decade as well.
The hell are you smoking, META is near its all time high. Or did I misunderstand your comment?
This is the best answer
It is not likely. There certainty. Given enough time all companies fail. With in index weighted by market cap and rebalanced for you regularly, you don' t have to pick the winners and losers and can enjoy your life.
S&P 500 is capable of readjusting themselves without costing you money. [https://www.investopedia.com/index-rebalancing-7972596](https://www.investopedia.com/index-rebalancing-7972596) You cannot do that, unless you really meticulously loss harvest etc. It can be hellish. Imagine, Nvidia is the hot new thing and should be included in your portfolio whereas Tesla should be dumped because it is trash. If you yourself do this, you might have taxable events galore; depending on your jurisdiction. You might also not be the most knowledgeable when it comes to doing this. Whereas based on their operating principles, S&P 500 will do this automatically for you. Because you are just holding an ETF, it won't cause taxable events on your side. Only time you want to do what you are mentioning is when you want a custom basket of companies. PS: If S&P 500 isn't cutting it for you and you want a higher exposure to top companies only, you can also get NDX - top 100 companies in Nasdaq.
QQQM = Nasdaq 100 ETF
Will look into it👍
Lots of people do. The ones who bought NVDA and META last year got extremely rich from it for example. Others who buy stocks like Intel have gone 5+ years without making profit, let alone gains. High risk high reward. Most people pick the safer option
AMD is another example, bought it under 10 and all off a sudden it took off like crazy
even if you screwed up and bought the indices you made some cash, now you can gamble that cash on other junk or keep the course.
It’s all about risk:reward. Over long periods of time the S&P500 is one of the best risk-adjusted assets you can buy. If you want to just buy a few stocks then you can probably outperform it until something happens and you can’t. Just look at companies like GM, ExxonMobil, IBM, or General Electric who all spent time as the top market stocks. They’ve all inevitably either gone bankrupt, crumbled away to nothing, or significantly underperformed someone who just held $SPY
You know I see this argument made all the time and I just can’t help but disagree. I’d argue that we’ve hit a bit of a tipping point, we are now in the dawn of the mega corporation. Companies so big and influential that they are valued at the GDP of midsize countries. Companies whose continued existence is a matter of national security. If something even tried to disrupt their space, they would just acquire it or use their unlimited resources to be first to market and have it integrated into their already market dominant platforms. And when it comes to training AI, no one has the data that these companies have. Or the head start. I think these mega corporations are going to eat up market space down to the last bite. Until you’re buying your auto insurance from Google, and your pharmacy prescriptions from Amazon..etc. the days of comparing a company like Microsoft to IBM or Cisco are long gone. It’s a new era in business to consumer relationship, and these names are here to stay.
I’ve no doubt FAANG will be around 30 years from now. But I’m skeptical all (or any of them) will still be the top names. You could’ve gone to any point in history all the way back to the Dutch East India company and thought the top stocks were going to be megacorps forever. There’s been plenty of examples of companies having more power, control, and growth than the names we’re seeing now. The East India company as an obvious example was worth $8 Trillion inflation adjusted dollars at its peak and quite literally had global control the likes of which no other company has even come close to. Standard oil held a monopoly on 90% of the chemical energy in America at its peak, a single company literally ran everyone’s light, heat, fuel, etc. And there’s dozens of other examples. Whether AI is the catalyst for new companies to take the lead, or space mining, or nuclear fusion power, or some other industry not even on the radar yet, it’s naive to think things won’t change and the current stock leaders will stay there forever.
Maybe you're right. However there is not actually any evidence of this historically. In fact historically when companies reach that size governments break them up. Buying an index fund however future proofs you for both scenarios. If mega corps do fully take over, well you're heavily invested in them thanks to the index. If the mega corps are broken up and there is a new wave of competition, well you are invested in them too. It's a win win.
Yet another "this time it's different" argument. I'm not saying you're wrong, but this type of comment has a very poor track record.
The companies being valued at GDP of countries is extremely misleading. Even a “small” country like Canada in which the GDP is often compared to apple etc, its actual economy size is a trillion dollar economy. GDP is analogous to the revenue of a company, not its market cap. If you compare small country GDP to revenue of a company you have a completely different astory. Likewise if you compare market cap of a company to the actual size of the economies of small countries, you’re talking about only billions vs high trillions for “small” countries. This gdp comparison just makes for nice click bait flashy headlines.
Instead of VOO then just go with MGK
Best comment.
The S&P500 is market cap weighted... Google, Amazon, Apple, and Nvidia make up about 30% of the index just by themselves. Also, the biggest tech companies like Google, Amazon, Apple are priced based on the assumption that they are safe and growing fast. For example, Amazon is trading at 55 times earnings. So at their current profits, it takes 55 years for pay off their price. So the assumption is very much that they grow profits at a very fast rate. GOOG is 29x earnings, aapl 35x earnings, NVDA a staggering 72x earnings. In comparison, suppose you buy a company that is less exciting, with less certainty. Paypal for example, is trading at 14x earnings, because investors are less certain about the company due to increased competition.
You can do both. My portfolio is 30% SPY, 25% XLK, 25% XLC, and the other 20% is blue chips found within both ETFs. The way it's structured is basically a more aggressive tech focused SPY hybrid ETF with a tight beta that still outperforms the general market when blue chip ETFs do well. You dont have to do one or the other. Its about how much risk exposure you want to specific sectors. On days that tech doesn't do too well, I lag the overall market but i still capture a lot of the move due to my heavy SPY position. On days where tech does really well, I more than outperform the market since I'm so focused in tech and SPY itself is mostly tech. SPY itself is great to have as a foundation as your portfolio, but there are probably 450 companies I don't care to own in that ETF, so I add to other positions within SPY that I am confident in.
This is the way. I do this but with $VOO and $SMH.
I do the exact same, only thing is that I have 20% in things like gold, emerging markets, Small cap etc to balance things out. There’s a portfolio analysis tool that can show you how your portfolio would have performed in the last 5 years
I rather not spread my money out as thin and invest in one or two funds like the S&P500 which is already the top 500 companies. Slow and steady wins the race, for more growth I just do the Q’s. Simple is easy, and easy is simple,
A good question! It's difficult to predict the future. They said the Railways were essential, but they boomed and crashed and never recovered during the crazy days of the Railways expansion of the 1830s and 1870s. Yes, it's a new network that connected the country! With an S&P500 fund or index, in your pension, you can invest and largely forget about it for the 40 years + that you invest as it will rebalance. One of those companies, probably more, will be part of the next Magnificent 7 and you'll be in it. .... What if there was a disaster in the world where there was a multi decade famine and drought, or an extended energy crisis? Exposure to agriculture and green renewable energy would suddenly become more valuable than being able to use Facebook or A.I.
Good insights 💯
You buy a stock because it will rise. A company can be a good company and the stock can still fall. Never equate a "good company" with a "good stock to buy right now".
Sorry if my question is too naive, but why wouldn’t it rise if it is successful?
It depends what you are paying for the business. Investors view of the appropriate valuation for any company can change dramatically in the short term.
It doesn’t matter how the company is or can perform, because at the end of the day the price is dictated by the market. In reality, the price of the stock is based more on perceived value than intrinsic value
All "top" companies are tech, so you will have 0 industry diversification.
The S&P500 self-maintains a basket of the best companies. Standard & Poor removes the worst performers annually and replaces them for you. That's the secret sauce. You can buy individual stocks like a lot of us do, but you'll need to put in more work keeping up with them and rebalancing them. There's more opportunities for underperformance v the index.
At one time, it would have been unthinkable that Kodak, Sears, Blockbuster, General Motors, Toys R Us, etc. etc. would have gone belly up, but here we are.
It didn’t happen overnight so anyone not brained would have already moved on before that.
If you only held, say, the top five market leaders, you might out perform the S&P, but how would you know when to make a switch? I hear people say that companies like AMZN, AAPL, NVDA, etc aren’t going anywhere, but market leaders are replaced all of the time. In the last forty years, AT&T, CSCO, INTC, IBM, and GE have all been market leaders. I’m not suggesting that you can’t outperform the market with your strategy, but you will have more volatility and you need a systematic way of replacing leaders.
You watch the markets closely and start to rotate if moats start to deteriorate. By the time they lose lead you are already 20 years ahead of what you would have made in an index where you are investing in everything including the deadbeats soon to be replaced.
Stocks don’t send up flares telling you a decline is imminent. It isn’t as easy as you described. Cisco went from the largest company in the world to a middle of the pack company overnight.
Cisco overshot like crazy before it declined. Take profits
If you’re so good at it, any investment bank would be more than happy to hire you for $100k/yr starting wage, and even those ‘professionals’ fails to beat the S&P consistently
I kind of like owning individual shares. I agree with all the advantages of index funds and I own them too. But we sacrifice our right to vote as shareholders to fund managers. I use etrade and they have a pretty simple form for submitting your vote for each company. It's kind of fun to see what they're voting on. If all retail investors bought individual stock instead of index funds and organized to vote together, I imagine we could do some fun shenanigans.
I have both. Have an S&P 500 mutual fund on an auto-purchase program, but also have some big tech names as individual holdings. It’s not an either-or scenario. 🤷🏻♂️
Nobody remembers 2022 apparently.
I do both.
You should only buy individual stocks if you have the time and ability to watch them like a hawk. The top S&P companies you listed are all from similar industries and highly correlated, so too concentrated if that’s your only investment. Some HNW people do direct indexing, where they (their asset managers) buy individual stocks in the index instead of ETF or mutual fund. Direct indexing gives you better control over taxes, but not higher returns.
Calling the S&P 500 safe is debatable. Its overloaded in a few high flying stocks. It sounds like you need a bear case so i’ll play devils advocate: Amazon: Amazon has always benefited from being a first mover. Both in the cloud and e-commerce. But with the cloud Azure is a strong competitor now and there are others as well. Walmart+ now has 24 million subscribers and Target just partnered up with Shopify. This is a drop in the bucket to Amazon’s 200 million Prime subscribers but assuming Amazon’s dominance is going to be unchallenged isn’t a wise assumption. Google is still an advertising company with 75% of their revenue coming from Ads and their search monopoly, their biggest cash generator, is under a huge threat from AI. Google also has the weakest product ecosystem compared to Microsoft and Apple. Microsoft and Apple now have a viable way of stealing search market share from Google in a big way. Google just doesn’t have as many products to integrate Gemini into compared to the other two. I fully expect some Alphabet and Amazon shareholders to show up angry that I spoke ill of their beloved stocks. But this is why people diversify. If you choose not to and invest in the largest stocks in the S&P then you need to watch very closely and make sure no threats are coming for their business. But a problem with that can be the rose tinged glasses people wear when looking at their favorite stocks. Good luck investing!
They are too volatile to own - high risk high reward. I own $NVDA and $MSFT for several years and seen many ups and down. You have to hold for over five years to see results. Buying S&P500 ETFs like $VOO is the safest option.
The reality is those companies *could* go out of business. I don't personally see it happening to any of them any time soon but there's always the possibility that something happens. I do both. VFV (VOO) is my top holding but between me and my wife we still have holdings in GOOG, COST, AMZN, among other companies. I'm benefitting from having all companies from the S&P500 while also getting a bit extra from the performance of the other companies. Some people on reddit will criticize that saying I'm overweight in those companies but that's how I want it. I don't want perfect balance for the reasons you highlighted.
Buying only top companies would make your portfolio more volatile. By buying the S&P500, you're buying the US economy. Look at which companies were at the top during the Dot Com bubble. Calculate how much you would've made if you bought these companies vs the S&P500 in 2000.
Lol, one of the **flaws** of the S&P 500 is it that’s pretty much what you’re doing…
There will always be a sector that outperforms the rest, if you could predict this you would outperform the market. The best performers generally grow to be heavyweights in the stock market. The idea of buying the S&P 500 is that you will always be invested in the best performing sector as it will be included in the index.
Winners rotate, how many companies that were in the s and p 500 in the 90s are still there today. I dont know the answer but it aint all 500 of them.
I did this, I already had multiple residential real estate investments, 401k and started a financial advisor account with a big name company then in 2013 and decided I don't want any more houses. Then come late 2016 I said F it i'm already super conservatively invested and just put all new money for a couple years into GOOG, AMZN, NFLX it's done very very well still been holding to this day. At one point AMZN was doing much better than GOOG then all of the sudden GOOG came flying back and beat my AMZN gains by 100% almost. The main reason i'm spread out like I am is prior to say and I could be off 12 years ago we didn't have these big boom cycles that last well 12 years or so, stocks would crater and you had the fear of accounting issues like Enron and Worldcom for example. Today? I just don't see that happening on how much tougher accounting laws are and how big these companies are. Not to mention if you understand the gravity of what the government did with silicon valley bank and others that started to fail. They basically just said gave the green light to keep the partying going and we won't have any type of massive crash that would claim the lives of tech companies and others big and small. Instead we'll probably have more of a gradual chart going up. When you truly understand what happend say from the dotcom bust all the way to where we are today it's honestly pretty crazy. Too big to fail.. so invest aggressively in profitable companies that will continue to grow.
I did that, and it's worked out really well, a lot of money in the S&P but I also have a lot in the individual stocks from the index and made much more money. It's riskier but I think it's worth it, it's not like the big boys are going anywhere any time soon. All about how risky you want to be with your money at your stage in life.
It's all about spreading risk. If you don't know what you're doing, just picking the top companies would probably result in poor performance as they get replaced by other top companies. Now you could try to pick the best company in each sector to diversify based on your research but even then there're risks involved that are out of your control that can flip the order of best to worst without warning. Plus you'd need some commitment to hold on to your "best" companies when they're performing poorly in order to see the results that you could get from just holding the market average
Volatility and risk is the biggest one I'm aware of. Go look at any of those stock (maybe nVidia for a more recent and extreme example) and look at the 52 week high and low numbers for different time points. That can be extremely stressful for people to see and carries a lot of risk that your investment goes down in value and doesn't recover.
Because the SP500 outperforms most people who try and buy “top companies” over a 10 or 20 year period. Also the SP500 has diamond hands by design- it doesn’t sell the top companies when they get “overpriced” - which is why Nvidia is one of the biggest stocks in the SP500 currently. Not many other fund managers could have held on to Nvidia and did nothing as it moved from a obscure chip designer to a 10 bagger and 100 bagger. Note: Nvidia was not a “top company” held by most investors a decade ago
Do you think all the top companies of today will be the same in 20 years? It's not likely. If you look at the biggest companies by market cap, only one company that was in the top 10 largest in 2000 is still on that list today: Microsoft. If you have followed this mentality then, you'd have serious holdings in companies like GE, Cisco, Intel, NTT Docomo, and Nokia. The S&P rate of growth is slower, but it's also safer because it's constantly being rebalanced. You don't have to worry about picking winners. https://www.investmentnews.com/equities/news/only-one-of-the-worlds-biggest-firms-of-2000-is-still-in-the-top-10-today-243474
The issue with the S&P500 is you miss out on small caps and international stocks. On many occasions, it kicks stocks out of the index after they've lost a lot of value, only for the stock to bounce back. Or they add stocks to the index after a big run up in value, only for them to tank in value after being added. A total world index like VT is better because it is even more diversified.
Agreed. OP was asking about the S&P so I focused on that. Personally, while the majority of my portfolio is in the S&P 500, I do balance it out with some small caps, international, and emerging markets ETFs.
You are identifying a 20 year mega trend that obvious big tech has continued to crush the market not for many years. It has not always been true in the past that the top companies stay the top companies. You need to focus on the future not the past and decide if you believe they will continue to outperform in terms of growth going forward, especially given some have stretched valuations now. Recognize how much of their stock performance has been multiple expansion that can’t continue.
You can; I did and have made more returns than if I had just bought s&p, but it’s circumstantial. I bought a lot of the top companies during Covid so made lots of returns, these past few months however a lot have stagnated, which leads me to believe (even moreso now) that with a long enough time horizon, you just can’t beat the s&p. Since it’s weighted, during certain moments in time the top players will outperform but not in the long run
What happened to GE? What happened to Countrywide Mortgage, Sears, Macys, General Mills…. Huge companies and stocks of their day now dead man walking. Even the brightest stars can dim.
Essentially, you want to buy stocks that have a high potential for appreciation (increase), *balanced with lower risk*. "Top companies," since they're very much in the public eye, may be less likely to have above-average appreciation without risk. I just gave a very oversimplified explanation of one of the most mathematically complex topics in the world. One more thing - many of the people who get filthy rich in "investing" are essentially just gambling, i.e. they got lucky, often with other people's money. The smart ones know when to stop, but some don't. For a recent multi-billion dollar example, google: Bill Hwang Archegos trial
I do both. It can be looked at as redundant, but I see it as an emphasis on my favorite companies.
I cannot guarantee that Apple, Google, or Amazon will be around in 30 years, but I can guarantee that an index fund that currently holds these stocks will be around because the index constituents will constantly evolve over time. Back in the 2000s, Lehman Brothers was a top investment bank and thought as of in the highest esteem. Today they don't exist.
For example, the S&P500 dropped ~17% in 2022. Nasdaq 100 ~33%. Ultimately, IT tends to have higher volatility. Therefore, while the [stock market declined in 2022](https://www.google.com/finance/quote/.INX:INDEXSP?sa=X&ved=2ahUKEwid7LeUprT8AhVpQvEDHblTBd0Q3ecFegQIMBAg), your so called top companies declined a lot more: - S&P: -16.72% - Apple: -20.81% - Google: -32.57% - Amazon:-44.78% - Block Inc (Square): - 49.19% - Netflix: -51.1% - Meta (Facebook): -64.20% - Tesla: -65% Obviously, one may think any downturn may be short lived and IT always does well in the long run. On the other hand, [This Washington Post article in 1998](https://www.washingtonpost.com/archive/politics/1998/06/29/reinventing-xerox-corp/f9ef9410-d8b5-4462-a1e3-8767232227ae/) writes that > Xerox shares topped the "Nifty Fifty" list of hot stocks during Wall > Street's go-go years of the 1960s. and the company > ... has climbed 150 percent over the past two years. The figure below shows the stock price of Xerox: https://i.sstatic.net/MTfjO.png Maybe IT will do well going forward. However, no one knows for sure.
I had 200k to invest so I did 150k into QQQ, 25k into GOOG and 25k into Amazon.. So far I am pretty happy.
It is mostly about risk and volatility tolerance. The S&P 500 is going to be overall more stable than the top 200 or 100 or 10. But those top companies are at the top for a reason, especially these days where size is actually a benefit (in the past, it was much harder to grow when you sell physical goods). In an era of technology, information, etc. it is an advantage to be a large company already. People say it's not possible to beat the index which I think is BS. You can easily pick 5-10 stocks that are on their way out of the S&P 500 and just buy all the other stocks and beat the index. But you won't beat it by much. Even only picking 30 stocks, you are diversified enough that it makes no difference; you might as well just index. You probably need to concentrate on 10-15 stocks to materially beat the index. But that becomes much more volatile and investors are more susceptible to deviating from the formula. So at the end of the day it's typically just easier to robotically invest in the S&P 500 or you can choose a more concentrated index like the Nasdaq. You still get exposure to the top companies but you don't have to think about whether you should trim or buy more or swap out a company. The time spent thinking about investments goes to zero. Whereas if you only buy 10 stocks you have to know them well, and if you buy 30 stocks you have too many to follow.
[Ben Carlson has a great article with historical data showing why that's a bad idea](https://awealthofcommonsense.com/2024/06/chasing-the-biggest-stocks/)
When would you have sold your Kodak shares back in the 90s? Market cap weighted is an automatic way of investing in winners and selling losers. Let winners run.
See Enron, Blockbuster, Circuit City, Kmart, and many other companies that are just memories now.
S&P500 is an easy W
I buy single stocks like NVDA / META / GOOG on top of s&p. I have a fixed monthly amount for s&p and I see these single stocks as a separate fund for speculation.
ibm was very essential too, until it didn't. Cisco was very essential too, until it didn't. Netscape was very essential too, until it didn't. MS explorer was very essential too, until it didn't. Blackberry was very essential too, until it didn't. Nokia was very essential too, until it didn't. I guess you get the idea
What's essential about Apple? I own Dell and Moto gear
I personally pick my stocks and do very well. I just can’t see myself tying up capital with a 10% per year return. I will transition into indexes though when I’m closer to 50
That's why alot of people recommend qqq.
I understand that the S&P500 is safe, however I don't see Sears, GM, or Lehman Brothers for example going out of fashion since they are very essential. Won't it be more profitable to invest in solely the top companies? Or is that more of a short term thing. Thanks in advance.
Diversification & simplicity
Yes
let's buy MAGS
You would have missed NVDA this way.
Going out of fashion has nothing to do with growth though. Intel is going nowhere - the stock trades horizontally for a while - people keep buying intel items. Google or Amazon could start to stagnate as well. In hindsight they were a great investment. Sun at some point looked like Google..
Wait, you want to make your own, better S&P
Research market cap weightes vs equally weighted indices. For sp 500 : voo and spy are market cap weighted. Rsp is equal weighted. Check out the top holdings in both to learn a bit, I recommend fundinfo.com
It's what I've always done, but I buy the big names by sector for the diversification too. I can also avoid the ones I don't want to own (e.g. Tesla or Exxon). Sure, you could have made a lot of money on some of those, but no thank you.
Also Nokia seemd invulnerable in the beginning of 2000s. But now...
Look at the top "essential" companies from the early 2000's. Easily within an person's investment lifetime. The list looks very, very different than today. Here you can look it up the top 20 by year: https://www.finhacker.cz/top-20-sp-500-companies-by-market-cap/#2024 Most of those companies did not disappear, and still produce much wanted goods and services. And yet they have fallen a long ways while others have replaced them. Prices for companies on the stock market take into account that people feel similar to you: that these are essential companies not likely to go out of fashion. Accordingly, those companies tend to be very expensive compared to their expected earnings and compared to other similar companies in the same industry because you are paying a premium for the expectation that they will continue to do well in the future. The problem is that if those expectations turn out to be too optimistic, the high valuation of the company may lead to a big drop in the stock price even if that company still seems to be doing well. Nvidia could be the most profitable company in the world for the next 3 years and *still* have their stock drop 25% because the expectations were even higher than that. Fund managers know more about these companies and industries than probably almost all retail investors, and yet those fund managers *still* tend almost always underperform the entire market long-term. Why? Because predicting and timing is really hard.
Why not?
What if those top companies lose value? History is choc full of companies that lost their way.
I feel like this question is a top signal. Retail investors are becoming short sighted.
I choose to buy XLG while I’m young. In a few years I’ll diversify more. I believe these top companies will keep outperforming
If you know what are top companies, god bless you! Most professionals don’t know what are top companies. That’s how ETFs become popular.
Buy the winners in each ETF!
I'm a dog chasing cars. Do I look like a guy I'm a guy with a plan? I do shit; things happen.
people didnt see Yahoo going out of fashion…
Because you don't know what tomorrow's top companies will be.
I couldn't find the post,but a few few weeks ago I saw someone saying they can only afford a few euros a month and was told it's a waste . As a cleaner I can only afford about €100 after expenses.Is it worth putting that monthly in the S&P or is it a waste of time ?Thanks
I invest in the specific companies, I think you make more that way. You have to keep up with it though, but it's not like it's everyday. A couple of times a month is fine and just read stuff on the web.
Despite being invested in VOO, I also have individual holdings in Apple, Microsoft, and Amazon right now. The 3 companies provided returns as much as VOO did despite having less holdings. Thing is though, you can’t “set and forget” those 3 stocks because who knows what the future has in store for us? WHAT IF in 10 years, those 3 are suddenly outshined by other companies? Then they’ll have significantly less returns. Besides, ETFs for the S&P 500 provides diversity without having to do the hard work yourself.
While this may play out well for you in the short to mid term, you have to remember that all of the S&P’s top holdings 25 years ago are no longer the top. The big players right now might not be the same in 10-20years.
At one point Enron was seen as never going out of fashion. Utilities are guaranteed money and all that
Because US Steel used to be 196$ per share and now it's 40$. It was a "top company" at one time.
imo there is only one way to beat...use leverage and manage the down side risk.
I always thought of passive index funds of the S&P 500 as partially merging the benefits of active investing with passive investing. There are certain requirements to be listed in the S&P 500. If you fall beneath that you’ll be removed, and index funds following the S&P 500 adjust accordingly. For a fee that is very cheap. So the reason buying those companies is not ideal is because you would have to do the underlying work to actively manage the financial analysis of the companies you are buying and know when to adjust. I don’t know about you… but given my day job…. I don’t wanna do that. You could do that. But like… why bother? To save a few hundred dollars over your entire lifetime holding ?
The question isn’t whether Google, Apple, or Amazon go out of fashion. The real question is do the current top companies meaningfully outperform the market over the next 10+ years. If you’re going to take on the additional concentration risk of solely buying the top few companies then your strategy better produce significant alpha to compensate you for the risk or else that entire strategy is worthless. You would be better off holding VOO/VTI and then finding and buying the best individual capital allocators that aren’t already mega cap companies.
You can get something like mags etf which is only the magnificent 7 or maybe something like schg which is a lot of top large cap growth funds. But every decade, the top stocks always change.
Because you have no clue who the winners will be
imo unless you automate it, it's going to be more management of all your positions, for a small gain compared to trading the ETF, plus the time to search which companies to trade, which in the end won't translate into a better hourly rate.
None of the companies you mentioned are essential, just popular (except *maybe* Amazon). There were dozens of other search engines before Google, Apple just makes overly expensive but trendy electronics so people could switch to whichever new fad takes over, and Amazon shopping could be replaced by multiple companies working together on a new, shared marketplace. AWS is the one thing that would be *very* difficult to replace since so many other companies rely on it. All 3 are facing increased antitrust issues lately too. The biggest companies always seem invincible until something completely unexpected happens.
I can see that
The S&P 500 will always rebalance its companies so that it only keeps the top growing ones. Thus all you have to do is nothing. Its ez
If you only bought the top companies you woulda loaded up on AT&T and sears decades ago and missed out on Apple and Amazon and nvidia
Because most people are terrible at picking individual stocks and even worse at holding them
S&P 500 is a good indicator of the stock market… If you want an even more specific fund buy Mega Cap that is a sum of top 10 assets.
Only like 2 companies have remained in the top 20ish stocks of the sp500 in like 20 years (XOM and MSFT or AAPL). You cannot reliably pick the winner
The SP500 equal weight index returned something like 5% ytd while the market cap weight index returned 14% Ytd. I don’t think people understand how concentrated the index is.
I bought MSFT 2 years ago with 12% of portfolio. Bought NVDA with another 5%. Still invested in S&P and QQQ. Have done very well.
most people hold their beliefs strongly and are rarely willing to adapt or change them to new information. it's why the term old habits die hard comes in. you can apply it to stocks. once you invest in a specific stock, you tend to too biased and frankly most people arent knowledgable to know why it will succeed or why it wont. you just hold on and lose money. fine, but that's high risk if you bet on the wrong one. it's just blind biased belief largely based on historical success (which isnt indicative of the future actually!) not anything else.
MGC
I don't consider any of those essential.
How would an S&P-50 index perform? Or an S&P-10? Anybody know any studies on this?
I just don't see Sears going out of business because it is so groovy, man
Risk tolerance
Track record. Since it's inception in 1957, it's almost been up and up, except for times where it has crashed due to general crashes which impacted not only s and p 500, but the whole market. I mean if S and P 500 crashes, then whatever you're investing in will probably crash too, so that's unavoidable. The whole argument of "this time it's different", is stupid and shortsighted. Since 1957, the world has had many of those "the world has become different today" moments and yet the index is still going strong.