You may have known that the S&P 500 is an index of the 500 largest publicly traded companies in the U.S. But did you know that it is a weighted index? That means that the largest company, Apple, has the largest influence on the performance of the index overall. Zions Bancorp, by contrast, is 500th on the list. Because its a much smaller company, its stock price has a very small influence on the way the index performs.
The chart below uses data from July 6, 2023 and highlights how tech heavy the S&P 500 index is these days. The top 8 stocks are all tech giants and represent 28% of the index overall! By contrast the cumulative weight of the bottom 100 stocks is only 2.5%. If the 8 smallest companies in the index disappeared tomorrow, your index fund would barely twitch. Goings on at Microsoft, or any of the top 8, however will certainly impact performance.
So what, you ask? Well, I simply think it's good to know what you own. At the moment, the S&P is up roughly 19% year to date. But this rally has not included all members of the S&P 500 equally. Tech names, fueled by AI excitement, have run out ahead. Generally speaking, I'm a guy who preaches on the virtues of investing for dividends. Stocks among the boring dividend payers are up about 5% on the year. That's to say that if you feel a little left in the dust by this year's rally, I get it. These moments of euphoria create a fear of missing out. If it has you wondering about your allocation, let's discuss it.
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