Is the S&P 500 Too Concentrated?

[@ThePlainBagel]

NOTE - In comparing the S&P 500 to other market indices, it's worth highlighting that every other country has a smaller constituent count, so a higher top 10 concentrated would be expected. While the point I was hoping to communicate was that investing in these international indices would result in less diversification than investing in the S&P 500, this is an important caveat I didn't emphasize in the video. Apologies.

[@MeEntertainmentJo_876]

Thank you for the clarification. :)

[@Kep19901]

Investing internationally is less diverse than the s&p 500 alone?

[@FaustsKanaal]

Xtra has products like Eurostoxx that do the same as the S&P for the eurozone. Like the top 50 and top 600. You can also get ETFs for example from Amundi or Van Eck that track grouping of European companies. National indexes are smaller, but then so are most European economies. The bigger ones like Britain have the FTSE 100 and 200. While Portugal has the PSI 20.

[@hmhmoinsdk]

@@Kep19901 if you only infest in e.g. the DAX40 : yes s&p is more diversified - if you invest lets say 90% S&P500 and 10% into DAX40 you are obviously more diversified

[@lonyo5377]

​@@Kep19901most of the S&P 500 is massive global companies. Apple, Google, Microsoft, Amazon, Facebook etc are all global companies, so from a consumer perspective is very global. If I invest in the FTSE100 then a significant amount of exposure is UK focused. FTSE250 even more so, so you would have in some ways less diversification geographically

[@LiquidityOcelot]

Watching in my 40s... And only just starting I feel so behind!

[@estevez1942]

Gotta start somewhere

[@VanillaCherryBread]

Keep going mate I started at 41... was in 12K debt and living in my overdraft. I'm now debt free have a 30K emergency fund. 20K saving pot and just surpassed 150K. It's good to have a nice balanced portfolio... I am almost 43 now!

[@FirstIdrinkCoffee]

I lost a lot chasing individual stocks and I feel pretty silly for not understanding how investing works. I have a double major in economics but I’ve been trying to make sense of the market. Well done on profits!

[@VanillaCherryBread]

Keep it simple, buy things you understand, take some risk but don't try to shoot the lights out. I’m invested in ETFs, equity index funds, and individual stocks and use a CFA. On average, she takes 10% of earnings, but using *Lina Dineikiene's* system makes it much more hands-off. I conservatively follow her recommendations and market entry and exit points, and tbh this makes it fairly simple for me... I am convinced it's not just hard work but smart work :-)

[@henrymitchell9717]

@@VanillaCherryBread That's a lot of money in 2 years!

[@SkinnyNiceGuy]

This is the most dry and straightforward finance channel but I love it. Thank you!

[@Foma_Stuppa]

Just like a plain bagel!

[@mmmommm237]

As it should be!

[@DylanJo123]

As all good finance channels should be. If its anything else its more etertainment than informative

[@TheFastAnderson]

Almost like a… plain bagel? Lol

[@rtothec1234]

Better than those sensational bro channels that are all hype and fallacy.

[@davidparker5530]

We are all so blessed to have such researched, nuanced, and simple explanations delivered to our front door for free. Thanks ThePlainBagel!

[@julius5632]

7:48 well theres also the difference in size. For example the german Inder (DAX) only tracks 40 companies..

[@FaustsKanaal]

Most national indexes in Europe track 20 to 50 stocks. The equivalent for the S&P 500 in Europe would be the Eurostoxx 600. Being the 600 largest companies in the EU.

[@elbranda]

Distillation of information in a concise and straightforward manner without oversimplifying or feeling the need to use buzzwords (which underlines insecurity I think) should deserve a Nobel Prize category, always a pleasure man..

[@surface3122]

I like the plain bagel ❤. You accurately portray just how "boring" stable and reliable investing is. No exaggerated excitement, no " way to make a quick buck", just plain old knowledge.

[@l4m41987]

lol, if the s&p 500 crash by 63% it doesn‘t matter in what you are invested at all

[@michaelswami]

Buying opportunity of all time.

[@Lucas-wn5wm]

Its like the playing field crashes

[@tapio_m6861]

That is just not true at all. The crux of it all is what you compare your investments to. What is your benchmark. For me, the point is to compare my investments to some alternative investment decision, such as the global index. If the global economy crashes but my investments are outperforming the global index, then I see that as a success. Even if my investments are also tanking. If the S&P500 would be outperforming my chosen benchmark, then that is a good investment compared to that benchmark.

[@aviralgupta393]

@@tapio_m6861 you want a benchmark for the benchmark?

[@l4m41987]

@@tapio_m6861 not sure in what you are investing but if the s&p 500 crashes 63% stock marked is down as a while and not sure if you care about 63 vs 60 % loss at this time.

[@Yorpy32]

My investment into the S&P 500 isn't active because I expect it to outperform anything. It's passive because it's "a safe bet" and I'll be in the same boat as everyone else. I don't care if I out-perform anyone; I care if I under-perform everyone.

[@potatoskunk5981]

That's still an active choice: you're not trying to beat anyone else, but you're still expecting a good positive return.

[@davec3974]

It's not a safe bet to invest only in the stock market of a single country.

[@tapio_m6861]

The active part of that happened when you decided to invest in the S&P500. The second active decision is whether you keep on investing on it or not. The rest is passive. The passive side of it is that you aren't making individual investing choices within that S&P500 index, but the choice of using that index in the first place is an active choice.

[@tapio_m6861]

@@davec3974 Arguably S&P500 companies are so heavily part of the whole global economy that investing in it also gives you a strong exposure to the whole global economy.

[@ravenknight4876]

That single country is the underlying of the capitalist world economy ​@@davec3974

[@Magic_beans_]

I prefer broader funds like ITOT or VT for the diversification. The S&P had a “lost decade” from 2000-2009, but smaller and foreign companies kept chugging along. Then Europe had a lost decade roughly 2008-2018 and the US was doing well. I couldn’t say what’ll outperform, but the imperfect correlation between market segments can reduce the swings somewhat.

[@pongop]

I agree about broader total market funds.

[@masi9044]

Go look at top holdings of ITOT same as SP 500

[@Yomi_Yuki]

I didn't know about the VT, I'll probably add it to my portfolio. I've been wondering about an index like that.

[@Magic_beans_]

@@masi9044Sure, large caps are part of the total market, in fact they’re the largest part. But ITOT, VTI, or IWV also put about 20% toward small- and mid-caps. That provides a bjt of diversification, and if that small-cap premium comes back investors will benefit. VT takes this a step further and expands globally with a floating market cap. The US is currently about 60% of global equity, so it’s 60% of the fund. The other 40% is spread across lots of other countries. Market cap weighting means the fund adjusts as the markets do, so if Brazil’s economy takes off it’ll automatically become a bigger part of the index.

[@Magic_beans_]

@@masi9044​​⁠ Right, because these funds are _supersets_ of an S&P 500 fund. The S&P 500 make up about 80% of a total US market fund (like ITOT) and just under 50% of a total global market fund (like VT). That other 20-50% is important though, as it provides further diversification.

[@LoganT101]

Canadians now have access to a variety of internationally diversified index ETFs. This can help if you’re concerned with country concentration. It’s a meme at this point but JUST BUY VEQT/XEQT/ZEQT (or one of the bond inclusive varieties).

[@Vancouver_Island_Guy]

once trudeau is gone i will buy xeqt.

[@LoganT101]

@@Vancouver_Island_Guy the prime minister doesn’t control the stock market let alone the global stock market my man. Time in the market beats timing the market so waiting is not advised for a long term investor. The second best time to invest is today. The best time is 20 years ago. XEQT is up 48% over the last 5 years so IF the prime minister did control the global stock market I’m not complaining.

[@Vancouver_Island_Guy]

@LoganT101 go on telling yourself that lol. Energy is a huge part of our economy and if you can't figure out trudeaus policies are screwing that up well you are lost. Check out energy sector prices here the past few years.

[@Vancouver_Island_Guy]

@LoganT101 btw I'm up way more than 48% in 5 years. I'm up 66% since just since Jan 1st invested in nvidia. Way more than that over the past few years. I don't need advice on investing but thanks anyways. Snp 500 is where you should put all your cash into. AI revolution is ramping up more and the mag 7's ain't going anywhere. Investing in the tsx the past few years have brought very poor returns. You thing the 48% return from xeqt since its inception is from the tsx lmao. 90% of the gains are from the US total market ITOT.

[@Pantomime0709]

@@Vancouver_Island_GuySee, what you’re doing here is investing based on recent past performance. 5 years is nothing for the stock market. Congrats on the returns, but chasing past performance is more likely to lead to underperformance in the long run.

[@lowwastehighmelanin]

I learn SO MUCH from this channel. Thanks, Richard. :)

[@Robert-ky8gl]

Richard is one of maybe three KZbinrs that I will 100% click on every single time I see a new video. Keep up the good work!😀

[@customersupport9055]

Who are the others?

[@TheTwigMaster]

The video’s title question read my mind! Thanks for sharing your thoughts.

[@Allie-ny8sp]

Well done. I appreciate your clear sense of ethics.

[@Duke6598]

7:52 yes germany has a high concentration of the top 10 stocks, but it only has 40 stocks in total in their country index (dax). S&P has 500 stocks, so this isn't a suitable comparison.

[@ThePlainBagel]

Good point, an oversight on my part. I’ve pinned a comment to highlight the added detail.

[@getpaid.gohome4506]

Well said, as a portfolio manager myself I admit my guilty pleasure is this channel. It feels good if you reinforce my line of thinking, but there have been more than a few times I learned something new. Keep up the good work.

[@Cdix]

As a person who watches your videos on occasion, I was expecting you to state the obvious about the magnificent 7 and agree on the level of concentration. Very impressed you took the time to go a lot deeper than just quoting S&P historical data and actually reviewed alternatives both domestic and internationally. Felt like it gave me a complete understanding. Thank you @theplainbagel

[@hundid5930]

Would have loved to see you bring up the sector weightings when discussing S&P's current multiple in comparison to other stock markets. The S&P has a much higher tech weighting then other global indexes, and then it had historically. Since tech tends to have higher mults this explains a lot. When you look us valuations vs global valuations adjusting by sector, US is not as expensive as the raw CAPE shows.

[@tapio_m6861]

Which brings up an interesting question: are there S&P500 indexes that have put a weight-cap on industries or individual companies so that the index doesn't become so heavily dependent on tech?

[@huplim]

Hello Richard! Can’t get enough of your videos! Thank you!

[@AciesTrading]

The concentration comparison with other indexes such as Germany's Dax and France's Cac is not valid since those are much smaller, in this case comprised of only 40 companies, if one would adjust for the size you would get a much smaller reading. If you take a look at the top 10 companies in stoxx 600, which is a closer comparison both by number of stocks and economy size you would get ~20%

[@ashleyzzzzz]

I’m so glad I stumbled upon your channel because you’ve helped me understand so much that I wouldn’t have been able to get from just reading on my own

[@CarsSimplified]

These videos are always a great refresher at the very least, but more often than not I learn something.

[@PrettyPennyClub]

Always first class explanation and commentary. Love it.

[@jhongpee]

Great video. I concur with the fact that investing only in the s&p500 may not be enough. I would diversified with small caps and specific regions (european markets, japanese or indian).

[@attila2246]

I find regional markets to be a waste of time. I’ve had money in there for years with barely any gains. All of my returns have come from US.

[@TheStrangeBloke]

The thing is, active investors should love passive investors. If it is true that passive investors are massively overvaluing certain companies, that's a distortion that the active investors can exploit. The issue is that there are too many active managers to justify their fees, and they should simply find something else to do!

[@Nousmourronsseuls]

Also, check that the fund you invest in physically replicates the index (i.e. by actually buying the shares) rather than synthetically replicating the index by entering into derivatives with counterparties where you are taking the counterparty credit risk. Big difference if things go wrong.

[@Drachensslay]

Naive question, but do vanguard etfs have this issue? VOO, VTI, all the others being mentioned in the surrounding comments?

[@RazorIsEpic]

​@@Drachensslay Those Vanguard funds replicates the index and aren't synthetic.

[@jonathon5075]

Friday PB uploadzie? It's turning out to be a great weekend. I utilize S&P500 ETFs, and its been good for me so far, so this is some good stuff to keep in mind. Thanks!

[@VAM_Physics_and_Engineering]

Great topic choice. I appreciate you taking the time to break this down.

[@denysb1543]

Thank you and thank you, Richard! Cheers from Toronto.

[@bhutwheyttherismor86]

Do you have a specific way you like to be cited or are your KZbin link/video links enough?

[@dirtydan6098]

He has an OnlyFans

[@itisjun]

Thank you Mr.Bagel! Love this channel!

[@left4d1]

I've been watching your channel for the last few years and honestly it's always great content. It's like I'm in a college class with how these explanations are!

[@BorselinoThadchack]

thank you sir. Yes, Small Cap will beat s&p 500 in the longer run

[@badarhoeington]

*I had problem comprehending trading in general. I tried watching other KZbin trading channels, but they made the concepts more complicated. I was almost giving up until when i discovered content and explain everything in detail. The videos are easy to follow*

[@triniteetellez-g3c]

I've been making a lot of looses trying to make profit trading. I thought trading on a demo account is just like trading the real market. Can anyone help me out or at least advise me on what to do?

[@damarizKavanaugh-t4d]

Trading on a demo account can definitely feel similar to the real market, but there are some differences. It's important to remember that trading involves risks and it's normal to face looses sometimes. One piece of advice is to start small and gradually increase your investments as you gain more experience and confidence. It might also be helpful to seek guidance from experienced traders or do some research on different trading strategies

[@mynameisforrest]

As usual your level of quality is very high, thanks for the vid!

[@michaelswami]

I put a significant portion of my 11 YOs investments into 25% Each of VB, VO, VOO and VXUS. That overcomes a lot of the concentration issues of VTI and has been wildly successful!

[@travisfyne9316]

VT, VO, VB for me

[@Earth3077]

Once you understand the Efficient Market Hypothesis, you realize that unless you can do "price discovery" better than hedge funds and algorithms (hint: you can't), the best strategy is to free-ride on *their* price discovery by sticking to market weights. Buy VT and enjoy life.

[@CromLine]

Market weights, what’s that mean?

[@michelchamoun9967]

The only exception is if you had domain specific knowledge. If you knew something about a company that almost no one knows, but isnt technicaly insider trading. For instance, if you are a senator thats just been informed that a pandemic is about to hit your country. Or if you are a cardiologist working for the american heart association, and you know that a drug will soon be recommended to be prescribed to 60% of the US population.

[@TQFMTradingStrategies]

I think there’s a major misunderstanding about active investing or even dare I say it trading. I don’t need to beat the S&P I need to consistently make more cash than my lender demands in interest. But they don’t want it later they want it now. So it’s apples and oranges. Which is why it’s bad that it’s marketed the way it is on the internet, good luck trading without an eye watering amount of leverage. And good luck trying to learn using an eye water amount of leverage. Tough sport.

[@Earth3077]

@@CromLine It's investing based on the value of each stock compared to all stocks. So if 4¢ of every dollar in the global equity market is invested in Apple, you also invest 4¢ of every dollar in Apple.

[@Earth3077]

@@michelchamoun9967 True. The "soft" Efficient Market Hypothesis claims that all *public* information is reflected in prices, but if you have non-public information, all bets are off. That'd be rare for most investors, though. I for one have never had and don't expect to have investable non-public info.

[@ols7462]

Good video, I don't invest in magnificent 7 or in any index etf for the sole reason of it being boring and not entertaining. Analyzing companies and making bets is fun! I don't like gamblig, instead stock picking is much more thrilling and entertaining. More rewarding too!

[@Earth3077]

You're still gambling with your retirement money. Why not use only a small portion of your portfolio to make active bets? Beating the index long term on a risk-adjusted basis is very hard, even for professionals.

[@alex2143]

"I don't like gambling, except I really love gambling, especially if I hit the jackpot baby!"

[@snafoomagee413]

I think an important point with these very large companies echoes what Warren Buffet recently said, and that was that "the larger you get the harder it is to shift the needle". I would love to see what less concentration would actually do to overall growth in the long run.

[@Abdul_Rahman86]

I invest in a global all cap fund . Despite being a global index fund, it’s still heavily concentrated into the magnificent 7

[@mjs28s]

Yes, it is very concentrated. At best one might refer to it as the S&P50, but more realistically it is more the S&P25

[@brianmitchell2202]

there is an equal weighted version of the s&p500 (rsp is an etf version)...the problem is it underperforms on both a total returns basis and a risk adjusted returns basis.

[@bosswavegaming8536]

Amazing video! Great analysis and alternatives to SP500!

[@Lithilic]

I'd love to see a video going into the details of large, mid, and small cap investments and their indexes that goes into their historical returns and their place in a diverse portfolio. In recent years large cap has performed the best, but from what you shared here it sounds like that's not a guarantee.

[@gozz457]

Any thought on the fact that US workers will continuously fund these investments for the long term only continuing to feed these valuations almost regardless of performance? I don’t see money draining out of these investments any time soon and if it does it’s likely to be short term.

[@TrevForPresident]

You've defined greater fool's theory if we're not buying these on valuation. A demographic shift of retirees pulling from investments could flip the pyramid.

[@Josh-ks7co]

Workers AKA people who earn an income aren't the primary stockholders.

[@rezwhap]

If you mean US workers funding via 401k etc, those are some of the buy-and-hold investors, a topic he addresses at 9:29

[@CPUReD]

Ive had this question on my mind recently! Praise be unto the plain bagel!

[@apacheattackhelicopter8185]

But why we have to choose only between equal and market cap weighted indices? I want an earnings-weighted index!

[@sznikers]

Earning are so tangled I'm not sure even the companies themselves know how much they're earning 😂

[@george6977]

Historic or forward?

[@apacheattackhelicopter8185]

@@george6977 why not both!

[@pongop]

Excellent content! Great points about the increasing concentration in the indexes, especially the S&P 500, a potential bubble, and the incentives of fund managers. Most people just say to invest S&P 500, but total market funds are a little better diversified. And the S&P may miss out on returns from small cap value stocks and the reduced correlation from international stocks. Plus, since the funds are market cap weighted, the S&P gets you the most expensive businesses, and higher price means potentially higher risk and lower returns. But S&P is a decent option, and it's about whatever works best for each person's goals.

[@thepleasantpuffin]

I pretty much just go all in on VTI. Its mostly the SP500 since it's weighted by market cap, but I still get exposure to the rest of the US stock market.

[@serialchiller4522]

I started with VTI in my ROTH until I got it to 3k, then I switched it over to VTSAX.

[@AbruptAvalanche]

@@serialchiller4522Why did you switch? What is the benefit of a mutual fund over an ETF?

[@Lonovavir]

VTI fan here, if I could only invest in one ETF it would be VTI or SCHD.

[@sergiowinter5383]

I'm a VTI VXUS enjoyer, why invest in 4.000 companies when you can invest in 10.000?

[@josepablobermudez6283]

VTI/VXUS for the Win!

[@qasimqureshi1230]

Such a good analysis as usual. Thank you for educating us

[@Crashtechs]

What’s the ticker for the s&p composite 1500 ? I typed in spr and it says something else

[@tradergurlnancy1551]

INDEXSP: SP1500

[@jeanpaullahoud]

Love your videos mr. Bagel. They gave me the minimum requirements for me to do my own research and understand investment books.

[@thomasdipalma4769]

Outperformance in one decade often results in an underperformance in the next. In both of Burton Malkiel's and Daniel Crosby's books they address this and the best process for handling these flat/side-ways or downward periods, namely by indexing with equal weight across international markets and rebalancing annually. I'm totally sold on that idea and have it implemented in my portfolio. Furthermore they both advocate for allowing the speculative side of you to come out but to limit it to 5% of your portfolio; advice I also like.

[@Theferg1]

Thank you for sharing the info. I’m just getting started with investing definitely would love to hear more info like this!!

[@flammmenspeeryt9184]

Nice that you start! As said in the video, it is not advisable to invest only in the S&P. It is concentrated and lacks international diversification. I would recommend the Rational Reminder community (or podcast/Ben Felixs KZbin channel) and bogleheads. The general consensus in those communities is essentially investing in low-cost, well diversified index funds like VT. Hope that helps 🙏

[@ryann8348]

In my taxable accounts, I was DCA'ing VTI, but I've recently started putting my excess money in IJR (S&P 600). In my tax-deferred accounts, I'm running IWM (Russell 2000). S&P 500 is fine, and I think it will do fine, but I think small caps are currently undervalued, have some tailwinds coming, and will have a big resurgence this year or next. When they've had their run, I'll probably go back to VTI, unless the AI thing ends up being a bubble and bursts; then I'd go to the Nasdaq after it deflates

[@Earth3077]

The problem with thinking X or Y is under/overvalued, is that you're taking the opposite position to a lot of sophisticated institutions that do this for a living, that have more information than you do, and can trade the news in microseconds. That's why index funds are great, you benefit from their price discovery for (almost) free.

[@dirtydan6098]

I think you are over investing. Just buy your VTI and chill

[@ryann8348]

@@dirtydan6098 That's my default, but I will respond to opportunities

[@parthasarathyvenkatadri]

Could there be a earnings weighted index fund ....

[@ZelenoJabko]

Could you use your brain? There cannot be such an ETF, because it would need to completely rebalance every quarter when the earnings are announced. It's too unstable. The transaction costs would be huge, and drift due to illiquid stocks. Also, different industries have different earnings or p/e ratios. Also, what about companies with negative earnings? You short those?

[@carlosteixeira4691]

Yeah, it's a thing, you can Google it and find some

[@samsonsoturian6013]

There's no need to get angry. And you could introduce reballancing limits, like only buying/selling when issuing/redeaming units. It doesn't need to perfectly track earnings just as current ETFs don't perfectly track market caps@@ZelenoJabko

[@Anony-Mous]

@@ZelenoJabko What bizarrely unjustified aggression. Calm down.

[@someguycalledcerberus9805]

Zeleno was pointlessly mean, but raised good point. A sustainable way to invest by earnings are value and multifactor approaches, of which there are a good number of ETFs.

[@phrofit4419]

Thanks for putting the effort into this video, I appreciate it.

[@brugamesbr]

Excelent video! Hope you do another one similar to this one

[@angelfabia]

You read my mind😂 yesterday I was wondering this, debating if I should get SCHG when I already have VOO, and worrying about a lot of overlap between the two. I couldn't really put it into words to search for, so it just went to the back of my mind and today BAAM your video shows up in my feed!

[@pauljohnson1256]

Apple, Microsoft, Google, Nvidia,Meta and most of the S&P500 companies are international companies. I'm not concerned about investing in other markets because of currency risk and population investing in the market too little in other countries. Take Brazil for an example, only 1-2% of the population invest. Turkey same. And they don't have the best companies. NU Bank ( a Brazilian bank ) went public in the US. Banco Inter moved to the US from Brasil because the US market is incomparable. Even the European market is weak for lack of investors and innovation.

[@Earth3077]

You can say the same about many non-US companies. Nestle sells all over the world, including the US. Why exclude them only because of the country in which they're listed? They could choose to move to the US and their business prospects would be the same, or a US company could move to a foreign exchange.

[@Earth3077]

Also, the % of population that invests doesn't change much, foreign investors can price the company accordingly if the locals won't.

[@pauljohnson1256]

​@@Earth3077If Nvidia was listed in France, do you think it would reach this valorization? When a company reaches certain valorization it can make it easier to access to cash, better talent and many other benefits. Nestle is a company like Coca Cola. I wouldn't invest in this type of company. Foreign countries indexes are made by banks, telecommunication and government involved companies or they completed their life and reached full potential. When you dig more you understand more about foreign markets that don't work like the US Imo. Foreign indexes don't make sense. I think you need a very genius team to find individual stocks that way you can make more than average in Europe. There is a reason great investors mostly invest in the US.

[@roddywoods8130]

What are the best additions to a $500k portfolio to boost performance? S&P 500 is Up and will do better in 2024 I believe as indicators for profits continue to improve, investors like me believe that “Santa has come early” to the markets.

[@selenajack2036]

I think you're better off with majority investment in S&P500 and uprising equities cos they always outperform. Alternatively speaking to a certified market strategist can help with pointers on which to acquire

[@hushbash2989]

No doubt, having the right plan is invaluable, my portfolio is well-matched for every season of the market and recently hit 100% rise from early last year. I and my CFP are working on a 7 figure ballpark goal, tho this could take till Q3 2024.

[@hushbash2989]

Marisol Cordova is the licensed advisor I use. Just research the name. You’d find necessary details to work with to set up an appointment.

[@bsetdays6784]

I appreciate this share. I set up a call with her and I am keen on getting to talk to her particularly. Lady looks really great though even with the exams and other stuff.

[@tomlxyz]

​@@hushbash2989scam

[@cole1]

thank you for the intelligent, non-alarmist takes

[@HowNOT2]

Good video!

[@apadgettski]

Hell yeah two of my interests colliding

[@NATOnova]

love this breakdown! the downsides and risks associated with large exposure to the mega cap stocks can be mitigated by total market funds like VTI, which is also the more "passive" move and closer to actual US market. Ben Felix has an excellent video on this

[@davidt.9578]

I’m surprised by the graph you showed saying the value of diversification plateaus after just 20 to 30 positions. I seem to remember hearing on the Rational Reminder podcast that generally only 1% of stocks make up the majority of returns in a portfolio. Doesn’t that mean with only 20 positions there is a good chance investors wouldn’t have any of the high performers and thus be more likely to miss out?

[@samsonsoturian6013]

It means you are highly unlikely to have no highperformers

[@someguycalledcerberus9805]

I assume that at some point you are buying so many losers, even if you buy the winners, your profits melt away. That said, it is enticing to just buy the MSCI IMID (9000 constituents, 99% of global investible markets). However, even according to their own datasheet IMID averaged around 8% annualised in the last 20 years - not bad, but still under-performs more concentrated indices. Though extreme diversification (like the IMID) _might_ reduce volatility and the risk of going completely bust.

[@alexx2878]

This is why active investing usually leads to lower returns than an index. Don’t find the needle, just buy the haystack.

[@richteffekt]

From what I understand the value of diversification lies not in more winner picks but in active risk mitigation. When your portfolio is built optimizing risk/return by including metrics like alpha v. beta and keeping an eye on cyclical v. defensive titles all the while also avoiding bad investments then your diversification value already tops out at 18 stocks actually. Now I don't know how the 1% figure came about but keep in mind that your 18 to 30 titles in a portfolio do not have to stay there for eternity but may as well change with time (General Electric, Ford or Kodak aren't all that great anymore but they used to be the sh*t) aaand not all positions are weighted equally. Big titles may not get you great gains in revenue instead of highly risky ones; those however should not make up a too significant fraction of one's portfolio. Again, just how I understand it.

[@rezwhap]

Both can be true. The graph is showing volatility as measured by standard deviation, but says nothing of missing out on return.

[@szx2222]

Not only is the S&P500 not diversified in terms of companies held, it is also not diversified within the weightings in each sector and this is even more perverse than many think. Many companies listed as non-tech are widely valued as technology companies -- Amazon, being just one example, is listed as consumer discretionary. What started as an easy way for investors to diversify to a low cost index has turned into an abomination and what has worked for it during the longest bull market in history will eventually work against it.

[@Azel247]

I encourage reading the "Tails, you win" chapter in Morgan Housel's Psychology of Money

[@erikwebb2743]

Thank you for getting into the details of boring, but important stuff.

[@daniellee6398]

Great commentary Richard. I know it’s not financial advice but I’m curious whether you invest in an equal weighted or market weighted S&P500 etf/index for yourself?

[@360dom360]

Would it be possible for you to make a video centered on Canadian investing? Should Canadians be generally trying to avoid US stock/ETFs or are the fees and exchange rates worth the benefits?

[@roc7880]

the issue is whether the stocks in SandP are correlated or not. if they are, expect problems.

[@GodApoaullo]

Thank you! Always learning something new from you

[@DonDee123]

Great content 👍 one of my favorite finance channels 🙂

[@notKhalid]

Well, Mike Burry, back in 2019, did say there was a bubble in large US company stocks due to the popularity of passive investing, which "has orphaned smaller value-type securities globally", there is definitely some truth and possible future consequences to this indeed.

[@zezog]

5:20 if we see more demand for the s&p500 shouldn’t the entire s&p500 trade at a higher valuation and the weight of mag7 in the s&p500 should remain the same?

[@kamenidriss]

Amazing explanation! Very clear and concise!

[@YungHurdy]

Another amazing video, so many people want to invest but know what they are investing in. With the future being full of risk I think this highlights the importance of investing in what you believe in. Dont invest in the market if you don’t like what the market is invested in.

[@michaelsmith4904]

what if you don't know what to believe in?

[@YungHurdy]

@@michaelsmith4904 pay off your debt lol

[@quasimodo1914]

I did a bit of research into how well fundamentals per industry can explain variance in stock prices using a bunch of different methods from simple linear models to neural nets. I did this thinking it would retain more explanative power than statistical models, which lost basically all predictive power once high frequency trading was widespread. The rise of capital inflow inti ETFs is super strongly correlated with the decrease in variance explanation, minus a few sectors. Like, super stark. Like, 420x between 1987-2003 versus 12x between 2003-2019. It was nuts

[@CyanTeamProductions]

Love this sort of video, I hope to see you talk about the S and P 500 more

[@TheGIGACapitalist]

The concern for bubbles related to index investing is valid, but largely the current and FWD P/Es don't seem unreasonable other than a couple absurd outliers.

[@rffinances8567]

This is in part the reason why I prefer total market funds like VTSAX to an S&P fund. My thesis as a passive investor is that I can't identify what stocks will be the best to invest in, so I'll buy everything and take the average return. This does mean I'm betting on the overall US economy which I feel is a relatively safe bet, but I've also invested some in international index funds as a hedge.

[@nylaan_ps6161]

What impact do index investors have when a major component like NVDA can go up 20% after earnings?

[@alex2143]

Simple. Trading volume is what sets prices, and since most of the trading volume still comes from active traders, active traders are still the prime factor behind price discovery.

[@RonakDhakan]

What about investing in factor funds as a way to combat some of the downsides of investing in a market capitalization weighted index?

[@futoman]

Hello, thank you for another informative and well-made video. It's incredibly beneficial for young investors such as myself. Watching this video prompted me to consider your thoughts on regulations like those in Belgium. As a Belgian citizen, I'm unable to directly trade CFDs or indices due to government regulations deeming them too risky, despite widespread belief that indices like the S&P500 are among the safest investments available. I'd be interested to hear your perspective on this matter, if you're open to discussing it. Best regards, Jarne

[@Sabiqoon-w8y]

Every time I see your amazing channel I think of the movie “ triumph of the nerd “ and as a fellow nerd I’m so proud of you and happy for your success Btw this is a imaginary movie that plays only in the daydreams of most nerds ( pun on the more famous and sinister movie of the 30s)

[@Ludix147]

I'm unsure how to think about currency risks with my investing. I live in the Eurozone, should I buy the S&P 500?

[@matousrendl7828]

Correlation of 0.18 is correlation of the whole index, right? If so, isn't for the purposes of this topic much more useful correlation between M7 stocks? Since, we are talking about how much their potential decrease in stock price could hurt the overall index performance.

[@haroldspanier9185]

Well researched and presented. Appreciate your video. Thank you.

[@AnnistonianAdventure]

The closer you get to retirement, the more stable you need your growth to be. Like here at 12:00 Imagine if you swapped from S&P500 to S&P600 at retirement in 1995.

[@tmallot]

Now I'm imaging a mrta-index fund that takes positions in the collection of index funds... How much diversification would it be to split one's money among the various S&P indeices? I'm interested in running back the numbers to see how this would have performed compared to having chosen each of them over 10, 20, 40 years.

[@isabelbedolla4226]

Very useful video for beginners like myself. I appreciate your guidance

[@davidhatch7603]

Great information and well presented. Love this channel.

[@shevek5934]

This is a bit of a specific topic but I wonder if you would consider talking about how it's possible for a company to offer a 0% expense ratio index fund, as Fidelity does with their various passive index funds. Is there some hidden risk involved with choosing one of these zero-expense funds versus a traditional fund like Vanguard with some non-zero but small expense ratio?

[@constantinaz3333]

Can you make a video on behavioral finance and how most of the people (maybe even 80%) not going to make 10% long term in index fund even though market makes 10%, especially when their account value becomes bigger and they have an access to “sell button”. Thank you!

[@luisgottwald1382]

If you want to to run a more diversified portfolio you could for example switch to an MSCI World / FTSE All-World Index fund or similar, since you are "only" diversified in Big US Bluechips when only investing in the S&P 500 (Maybe you might also be interested in adding a Russel's 2000, an EuroStoxx 600 or an Emerging Markets-ETF to your portfolio) since diversification is the only free lunch in investing...

[@mosesbakst]

Hey Mr. Bagel question for you: if i got to the store and ask for "two everything bagels with cream cheese, and another but plain" are they giving me 2 et w/cc and a plain with cream cheese, or 2 et cc and a plain everything bagel? thanks

[@Fiercesoulking]

Its mostly the magnificent 7 but not all.Big Tech have become under massiv pressure : 1. They need to compete with interest rates to some degree. 2. Their gain vs stock evaluation is 3 times worse then other stocks (like he said they are expensive so to speak) 3. Without new radical products most of them reached market cap even NVIDIA will hit max this year with AI card and get a drop off somewhere next year. For each of them its a bit different e.g really worse is it for Amazone Temu and Shine biting a large market share from it atm and AWS cloud has also slight problems because companies realized the high cost and technical debt what comes with cloud.

[@luisfilipe2023]

The more I learn about investing the more I come to the conclusion the best strategy is to split your money between the S&P 500 a small cap index an international index focused on developing economies and an income focused index

[@alex2143]

I do almost the same, with 70% FTSE all world, 20% US small cap value, and 10% EU small cap value.

[@camiloguzman1801]

Richard, excelent video. Thanks a ton.

[@ariavachier-lagravech.6910]

Something I've always been wondering is whether using Beta is useful with magnificent seven stock because they are so big their downward movement is s&p 500 downward movement. Which meant their Beta would always be close to S&P 500 beta