this is a spurious argument but it was recently used by others.Everyone wringing their hands about the mortal danger here should double check what makes up the top 25%+ of their current stock market index fund(s), by weight.
S&P 500 as of now:
Top 25 Companies by Index Weight
1MICROSOFT CORP (MSFT): 7.20%
2NVIDIA CORP (NVDA): 6.40%
3APPLE INC (AAPL):6.24%
4AMAZON.COM, INC (AMZN):3.76%
5META PLATFORMS INC, CLASS A (META):2.36%
6ALPHABET INC CL A (GOOGL):2.34%
7ALPHABET INC CL C (GOOG):1.98%
That's 30%, wrapped up in six giants of technology.
How much does selling NVDA and buying VOO, VTI, or similar actually mitigate the risk of the next downturn in the "tech" sector?
the top 10 companies of S&P500 do make up 35%. ok, no arguments there.
who said you should only own 100% S&P500?
the top 10 companies of total stock market index fund make up 28% of the fund (just noticed one in the top 10 i don't remember seeing, Broadcom AVGO). But the same tech companies only make up 24% of VTI.
the top 10 companies of total world stock market index fund make up 17% of the fund (and those same tech companies only make up 14.78% of VT).
Who says one should only be 100% stock?
As you keep diversifying away from the S&P500 your concentration of risk continues to decrease. As I put in another post, if you have a 60/40 portfolio and own the total world stock market index fund and have the 40% in fixed income, then the top 10 companies only represent .60 x .17 = .10 or 10% of your entire portfolio. So roughly each of the top 10 companies only make up 1% each of your entire portfolio. So if one of these went out of business you'd be down 1%. A real nuthingburger in my opinion.
The problem here is Nvidia makes up 25% of their ENTIRE PORTFOLIO (excluding real estate).
That's a HUGE difference between losing 1% of their portfolio and potentially 25% (and yeah, you can say nvidia wont go out of business just like has been said about all the other companies that went out of business). Like Swedroe says, some risks are just not worth taking.
Statistics: Posted by arcticpineapplecorp. — Fri Jun 14, 2024 10:15 pm — Replies 154 — Views 20037