If you've done much reading at Fool.com or at many other financial sites, you'll likely have run across recommendations of low-fee S&P 500 index funds such as the Vanguard S&P 500 ETF (VOO +0.83%). Heck, even Warren Buffett has recommended them.
It's hard to argue with such a recommendation -- but I'll try. First, though, some upsides:
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- According to the folks at S&P Dow Jones Indices, over the past 15 years, the S&P 500 index has outperformed a whopping 88% of managed large-cap mutual funds (as of June 30), and it has outperformed 86% over the past decade.
- The S&P 500 is updated regularly, so it stays current. Fading companies are removed to make way for up-and-comers.
So what's the problem? Well, the S&P 500 is market-cap-weighted, meaning that the bigger the component company, the more influence it will wield on the index. The top five stocks in the index -- Nvidia, Microsoft, Apple, Amazon.com, and Meta Platforms -- recently made up nearly 28% of the fund, even though they were only 1% of the 500 components.
That's great as long as such companies are growing briskly. But if one or more of them pulls back sharply, so will the entire index.
You can avoid such concentration by opting for the Invesco S&P 500 Equal Weight ETF (RSP +0.27%), which holds each of its 500-some components in roughly equal proportion. The Invesco equal-weight ETF's top holdings would, therefore, make up only about 1% or 2% of the overall ETF value. When smaller components outperform bigger ones, this ETF will perform better than its more typical counterparts.
NYSEMKT: RSP
Key Data Points
Learn more about the Invesco S&P 500 Equal Weight ETF and see if it makes sense for your long-term portfolio. It's likely to grow at a solid pace over the coming years, with a bit less risk.
