I think that taking some time to think about the answer beforehand, and then wiping your memory completely clean and going into the analysis with an open mind is key. SPY is an S&P 500 ETF that is weighted by market capīefore you go any further, I challenge you to take a step back and think about what you think the outcome is going to be.If you know anything about you me, I am a man that lives and dies by the numbers, so let’s dive deep!įor this comparison, I am going to compare two different ETFs: Personally, I would want a majority of my money to be invested in companies that are continuing to crush it rather than those that are company 499 in the S&P 500.Īll of these are merely just qualitative factors though. If you’re investing in an S&P 500, that’s what you’re looking for – somewhere that you can dump your money and not have to worry about it again until you decide to take it out for retirement. If you are in favor, I think that makes sense too – big companies have grown because they have shown long periods of sustained success. They’re all tech companies! Personally, I love tech companies and think that they’re the way of the future, but I understand why you wouldn’t want HALF of your investment to be in tech if this was where you were parking all of your money for the long-term. A large majority of the companies that you’re investing in are making up a much, much smaller amount than those Top 5 companies are.Īnother issue with this is that if you look at those five companies that make up the 22% – what do they all have in common? If you’re not in favor of the ETF because you’re not diversified, I can’t disagree at all with that because you’re really not. Honestly, I flip back and forth on my opinion of these two viewpoints and can legitimately see it both ways. In essence, it really boils down to two different opinions:ġ – You think that it is a bad thing because your investment isn’t very diversified as 22% is made up by 5 companiesĢ – You think that it is a good thing because theoretically, the larger that the company is, the better they are Every company, regardless of market cap, has the exact same weighting.Īs I mentioned earlier, the question is really if this is a bad thing or not. An equal weight S&P 500 ETF is just that – it’s perfectly equal. Which brings me to the next option – an equally weighted S&P 500 ETF.
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