Investing in the S&P 500 (^GSPC +0.70%) is popular, especially through exchange-traded funds (ETFs) like the Vanguard S&P 500 ETF (VOO +0.71%). But it includes some tradeoffs.
The S&P 500 index is made up of the 500 biggest companies in America. Together, they account for about 80% of the U.S. stock market's value. Invest in the S&P 500, and you become a part owner of 500 large businesses, instantly diversifying your portfolio.
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Better still, the S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods.
NYSEMKT: VOO
Key Data Points
So, what's the tradeoff?
While you might be a part-owner of 500 companies, you'll own very, very little of most of them, because the index is quite concentrated and top-heavy. Here are the top 10 holdings of the Vanguard S&P 500 ETF and their share of the index:
|
Stock |
Weighting |
|---|---|
|
1. Nvidia |
7.50% |
|
2. Apple |
6.58% |
|
3. Microsoft |
4.29% |
|
4. Amazon.com |
3.61% |
|
5. Alphabet Class A |
3.24% |
|
6. Broadcom |
2.77% |
|
7. Alphabet Class C |
2.58% |
|
8. Micron Technology |
2.01% |
|
9. Meta Platforms |
1.91% |
|
10. Tesla |
1.83% |
Source: Morningstar.com, as of June 30, 2026.
Since the index is market-capitalization-weighted, the biggest companies are weighted the most, wielding the most influence. These nine companies (Alphabet appears twice on the list) recently accounted for more than a third of the entire index! Indeed, the top three alone made up 18%. So if you buy into this exchange-traded fund, you'll be mostly invested in a bunch of huge tech companies.
Nike and PayPal are in the index, too, but each was recently weighted at less than 0.1%. Lululemon Athletica and Hasbro were only at 0.02%. If you're not loving this concentration, check out the Invesco S&P 500 Equal Weight ETF (RSP -0.17%). It's also an S&P 500 index fund, but one that weights each of the 500 companies equally and rebalances quarterly.
Don't think that it's too late to invest in the S&P 500, either. It does seem more overvalued than undervalued, but investing in it can still work out well.
