I'd like to highlight the point that the S&P changes its portfolio periodically. A side effect of this is stocks that were doing well, but are no longer doing as well, tend to contribute less to the Index. Conversely, companies that are doing better than before tend to contribute more. In the end, this means this passive investment method has a built in mechanism to get better over time by focusing on the currently most profitable companies.
Back in 2018-2019 I took my work 401k and equally divided it into the best four performance funds available and the S&P500 fund was the fifth. Five total funds and over a year later the S&P500 fund had THE LOWEST return rate performance. But guess what...it actually had THE MOST money compared to the other four funds! At that point I finally convinced myself that FEES MATTER! Been 100% S&P500 ever since....
I like the total stock market fund better than the S&P because it is more diversified. But the S and P is also great and has very similar historical returns.
Target date funds have MANY issues. First, they put people into bonds, without regard to what intererst rates are, just the persons age. When interest rates are low, they would be adding bond funds, just when rates are likely to rise, thus causing the portfolio to go down. JUST at the time where people are losing the ability for time to help them. Consider the person who became 60 in 2022, as rates went from .25% to 5%. Every rise of the Fed, would cause their portfolio to drop. And they are close to retirement. Rather in 2022, the place to have been would have been equities, and some cash. (money markets). Second, most target date funds are funds of funds, so you are paying a HIGH amount of fees. This is why 401K managers push them. I would agree, as you get older, you do need to protect your portfolio, but target date funds are NOT it.
@@sarscov9854 No idea what you are trying to say. Are you trying to advocate for target date funds? If so, I repeat, as interest rate rise, a bond fund''s NAV will drop. i.e. the value of the fund for the person will go DOWN. Target date funds ONLY pay attention to the person's age when they do a change of the ratio of equities to bonds. To be useful, they also should take into account the probability of whether interest rates will go up, down, or stay the same.
This video presentation should be required watching for anyone interested in investing in an S&P index fund. Please consider additional videos on other types of index funds.
Four fund portfolio in one account. VB, VO, VOO and VXUS. VTI is still concentrated in the largest companies, so I create my own version through the sub components. I also have some others. Great info Erin!
I don't need the S&P500 index, but it's the only reasonable foundation choice in my 401k. I don't want a target date fund, and the only other choices are some very expensive (over 1% er) funds, or the 4 funds I'm in which include the S&P 500 (and a completion fund, total international and total bond).
I started with the Vanguard's S&P 500 index in 2000, and that was it for many years. In 2013 or 14, I decided to diversify a little, and move a large portion to VTSAX and only contribute to that instead of the 500, and I went 10% of my total portfolio to Foreign developed and 5% to a REIT at the same time. I keep telling myself I'm going to shift 5-10% to a small cap index of some sort for some more diversity but haven't yet. At this point, I'm only 13 years from retirement so should probably go the other way into some bonds. I'm slow to change. Good thing I dont touch individual stocks! lol
I have 35% of my capital investments in an IRA, 25% in index funds, and the balance spread across other investment accts totalling over $250k. I took a big hit in Q4, 2023. Right now i am just looking for ways to recover in 2024.
I have been investing in the market since 21. I am 25 now and the vast majority of my stock market portfolio is in the S&P 500. Three of my biggest holdings are VOO, VTI and VIG. This strategy has worked pretty well so far as my stock portfolio is over $90k with an average yearly return of around 10%. I am so close to the hundred thousand milestone which is exciting. Also, since that money is for retirement and I don't plan on using it for another 30-40 years, I don't really care about some volatility here or there. I just wanted a simple solution that could get me invested in the markets quickly without having a ton of risk and not needing to think about it much.
VTI contains all of VOO so it isn't doing anything to diversify your portfolio, you're just overweighting certain stocks. VIG is probably a better compliment to VTI but more volatile
Living in Central Europe I chose that clip as my free-of-charge English lesson for today. Perfect pronunciation 😊 and good contents, even though just as recap. 🎉
Yeah the S&P only says how the large caps are doing but when the caps make up the vast majority of the market by weight, how the large caps go the market goes because the mid and small caps don’t hold enough weight to counteract the large cap movements. If the S&P went down 30% the mids and smalls would need to go up well over 100% to counteract that.
So what has been the effective turnover (churn) rate of the S&P 500? I know an investor from the 80s would barely recognize the DJIA members. Not many people invest strictly in Dow companies, but it’s still an even more popular shorthand for “The Market”
I have the S&P500 as the Roth portion of my Roth 401k since that was the only reasonable equity option in my plan with the employer match (traditional) portion being BND. In my Roth IRA I am a VTI and VXUS person. Personally I consider VOO and VTI to be functionally interchangeable. The only use to holding both imo is to get around the wash sale rule, which doesn't apply to retirement accounts anyway.
Jack Bogle also endorsed index funds which led to the growth of Vanguard. As a Gen Xer, I am a big supporter of NASDAQ and technology. I have lived in a time starting when most homes had no computer and now, a typical American home has several. Look at our place in history, back 50 years and ahead 50 years. Technology will continue to have an extraordinary impact. I've been riding that wave for decades and see no reason to change course now.
I want more expose in US stocks besides the S&P 500. State Street has 3 different S&P1500 index ETFs one market cap weighted, one value tilted one momentum tilted; all 3 own about 90% of US stocks. I own the S&P 1500 index ETF one market cap weighted ETF (SPTM) and the S&P1500 index ETF value tilted (VLU) in my Roth IRA.
Great video. When I first started investing heavily, I looked at all my funds in 401k, IRA, and HSA and found 20% of my money was in Apple, spread over all the funds. I own no magnificent 7 stocks individually ( except a little Apple). I feel I Have enough exposure to them in my funds.
Whether index investing distorts stock prices is an interesting and important question. Every month, employees add to 401K money invested in the index, and their funds have to go out and buy billions of $ worth of Apple, Microsoft, Meta, and Alphabet. Sure, some index fund holders sell, but the difference between buyers and sellers is still a net boost for these giant stocks. As index funds hold more and more of these stocks, the shares available for purchase diminish. The non-fund holders of these shares are making good gains, and are increasingly unwilling to sell except at a very high price. This will eventually distort the S&P and create a giant bubble.
It definitely has some moral hazard, as it gives a small number of fund managers a lot of voting power (e.g. to push ESG when voting the shares they manage, which is not something many individual investors would do). And companies can focus on appeasing those big fund managers instead of individual retail investors. On the other hand, as more people opt to be passive, active investors ought to have more sway in markets by selectively buying and selling instead of just indiscriminately buying everything. So there's should be more of an incentive for active investors to capitalize on ups and downs.
I have VOO because it's hands-off and less volatile than investing in individual stocks. I have QQQ because, while it's a bit more volatile than VOO, it generally produces better returns. But, don't listen to my advice: 70% of my stock portfolio is in TSLA.
12 years ago I invest about $1700 @ $34/share into TSLA. Sold and repurchased it many times and enjoyed the stock splits along the way. I now have 1275 shares and have taken $100+K out when it went to $1200 a few years ago. It now accounts for 39.8% of my holdings and is the largest provider of investment disagreements between my wife and I. She REALLY doesn't like that I am invested in it, at least not to this percentage. The rest of my holdings are far more stable. I used to have QQQ but after about 18 months bailed for a couple of reasons. Interesting thing is that TSLA keeps becoming a smaller percentage of my total holdings all by itself.
@@bryanwhitton1784 That's how mine is so large. I didn't set out to get a lot of it, but it just kept growing to the point where it took over my portfolio. I haven't sold any, though. My wife doesn't know anything about stock investing, although she is an accountant. She's happy with my investment choices because they tend to do better than VOO. Most of my investments are not in the stock market. I'm retired, for context.
I'm much heavier in VOO, however I have a decent amount of VTI as well. I get it, they're nearly identical - spare me. I add the VTI just to allow some of my portfolio to see small/mid cap in case of a large cap slump. However I'm not really concerned with either of them over the long haul.
@@MeltingRubberZ28yeah I have both but not in same account…I like VOO better but VTI is cheaper and I like to see more shares in my account lol…both are good obviously
@jasonjstdr yeah. They're so similar it's a tough to compare. Both will serve you well over the long haul. Just thankful for good index funds like these available.
I have a $397k portfolio consisting of 33% S&P, 33% Total stock, and 33% international. I feel a need focus on complete growth so I want 100% stocks, but does the SP500 and TSM overlap too much to make sense holding both?
You might also follow a lots stock across other industries. I'll advise you to work with a financial advisor who can assist you decide when is the best to buy and sell the shares or ETFs you want to acquires since you don't have to act on every forecast.
I would think you are weighted far to high in International. When you look at the s&p and Total stock funds, they consist of companies that have huge international exposure. How much foreign exposure do you think AAPL, MSFT, TSLA, etc, have?
I'd probably just drop the S&P 500 part and put it in with the US total market to keep it simple. Doesn't change much, just giving you a little more of the smaller cap companies. But it probably doesn't make much of a difference either way, so I wouldn't worry about it unless they have very different fees.
The majority of my retirement fund is in the NASDAQ & S&P500. They were the two best options available to me when I was in my 20’s. In my personal brokerage account I’m mostly an FSTMX kinda girl. My HSA isn’t invested in any indexes it’s individual stocks & my Roth IRA is REITS & dividends stocks.
Thanks for the reminder for some of us, and clarification for others. Perhaps a companion video in the future looking at the various major index funds and their past and projected future performance? Yes, projecting future performance is a crapshoot, but it's fun to see how the various agencies think things will playout nonetheless...
I'm a Boglehead 3 fund kind of guy, but I also add a 10% SCV lean to keep it interesting. No right answer, just what's right for you based off your risk tolerance and your goals.
what do you mean just 3 funds? I thought Bogleheads do 4 funds to cover (Domestic Stock, INTL stock, Domestic Bond and INTL Bond): VITPX/VTI to cover Total Domestic Stock index, VTSNX or VXUS to cover INTL stock index, VMBPX or BND to cover domestic bond index and VTIFX or BNDX to cover INTL bond index. The difference in ticker is just mutual fund vs ETF, but same investments.
I only keep 10% of my portfolio in S&P 500. When the top 7 keeping it afloat deflate, it will come back to earth and lots of folks will have tough retirements. I invest the rest in SCV, LCV, S&P 600, and those same analogues in developed and emerging funds. The more geographical and sector diversification with targeted risk exposure, the better theoretical return. So far, my portfolio has very low drawdown and exposure to a variety of funds that could take off at any time.
S&P 500 Vanguard (VOO) is a core holding of mine. But I also have several other ETFs that help diversify like AVUV for small caps that tilt towards value.
The S&P index was renamed the S&P 500 in 1957. It has been around since 1930 or so. It is worthwhile to note that the S&P 500 has a long history of data and data analysis. Including over any 30 year period since 1929 it has provided at least 9.8% annualized total return. That makes it a very stable investment for investors. My wife and I are 75. We are invested in 2 index ETFs - QQQ and VOOG. As well as 2 large cap mutual funds that have out preformed the S&P 500 over 5, 10, 20 years and since the 1980s. Not much has changed over the past decades.
Good tutorial! Liked the ending, referencing VTSAX. I've been thinking of switching over to a total stock market index. I don't like the tech weightng. Granted, it's been on fire for a long time, but those correction years are rough. Every dog has it's day. Small caps are starting to recover after being punished from rising rates and liquidity. Easiest to be in everything, buy and hold, and not try to do so much market timing.
Been watching your content for a couple years and I just wanted to commend you on not only your dedication to your channel but also the quality of it. Your videos have always been great and they just keep getting better. Always excited to see a new video! As far as the s&p is concerned: I do use this as my primary fund although I also invest in a total index and an international index so I can be exposed to many different stocks.
The far majority of people should have a good portion of their portfolio in the S&P. Others that study market history and have a strong stomach may choose to diversify into international, value and small in hopes of either beating the market or to avoid a lost decade like from 2000 to 2009.
VTSAX at one point was beating the S&P - they are basically neck and neck if you look at overall returns. S&P has high cap stocks which are presently outperforming lower cap, but in the past lower cap beat high cap. It's all transitory, and in the end VTSAX is more diversified and, in my view, a better long term investment
As usual, good content and great discussion Erin. This will stir the pot a little, in a good way 😉 I'm and indexer too. Paul Merriman has an extensive body of work that includes indexing, ETFs etc and the S&P 500 has a place in a lot of it. Thanks for all the great content you put out each week Erin! Larry, Central Valley, Ca.
I just read Professor Scott Cederburg’s recent research. Interesting topline results: Financial Ruin (Running Out of Money) Probabilities for Four Asset Allocation Strategies During Retirement: 100% T-Bills 34%, Target Date Funds 17%, 100% US Equities 17%, 50% US Equities/50% International Equities 8%.
'the market as a whole' trends and follows the SAME as the S&P 500, which is why it is a metric to watch. Pretty simple logic. The S&P goes up, your total stock market VTSAX goes up. The S&P goes down, VTSAX goes down. It is the largest companies. VTSAX is biased toward those same largest companies. The bigger the company the more VTSAX holds of that company and the larger percentage of VTSAX IS that company..... So yes, the S&P 500 IS the index everyone needs. 9:01 Now you changed the question to 'is the s&p 500 the index everyone SHOULD INVEST in?' That was NOT the question asked in your video subject. There is a huge difference between 'an index' and 'investing in an index'. Change your video title to be the appropriate question if you are talking about what index to INVEST in. As for what index to monitor to see how the market is doing, the S&P is the most ideal. An index is NOT a fund and you cannot invest in an index. Some funds are made to duplicate the indexes. Again, there is a very important distinction.
I mostly have total US market investments. Not sure about my 401k offhand, because I think it might have only had a good S&P 500 fund instead. Picking one or the other mostly boils down to whether you want small cap stuff or not. Will megacorps continue to dominate the market, or will less bureaucratic small companies be able to grow faster without being encumbered by megacorp problems, like ESG silliness? I could see both, so I'm comfy with the total market instead of focusing on just the big boys. Getting the new up and comers before they're big enough for S&P 500 seems reasonable to me too.
I much prefer the NASDAQ based on significant outperformance. Technology is the future, and will continue to emerge as the best performing asset class for a long time IMO. It drives the economy and currently is propping up all index funds over the past year. I ramp up the risk even further with leverage, using TQQQ, which over time has absolutely insane performance. If you buy the dip, the recovery is incredible
The Vanguard Total Stock Market Index Fund is not “an index.” It is a fund that seeks to track the performance of the CRSP US Total Market Index. Minor point, but if you’re going to present info educationally, you should probably nail down the finer points.
Interesting information. Warren Buffett recommends S&P 500 index funds for those of us who are not financial professionals. That's me, and what better advisor could I ask for get than Warren Buffett? :)
“Having an international presence and customer base” does not mean that this or any domestic index fund is internationally diversified. US stocks behave like US stocks and are all subject to similar market forces. Domestic index funds are not suitable for global diversification.
I have a lot of FXAIX but I do make an effort to pick up as much total market and small/mid where I can. I also have a lot of target date funds. Ultimately I have faith in the 500 largest companies in the US so until we see a great many of these collapse I can’t see deviating much.
A total stock market index is the best choice in my book. Why? Well, specifically, if you're investing a taxable account, you can't afford to be in and out of equities with taxes eating into your returns. Over the long haul, it's highly unlikely that I'd be selecting winners that (a) out-perform the S&P (or total market), and (b) could be held indefinitely. For the "core" of your portfolio, at least until the point of FI, the S&P, or a total market fund, is going to be the best choice. Beyond that, go wild and start experimenting with individual stocks, private equity, MLPs, etc.
Global diversification is what I'm after. There's no telling what will outperform in the future, and US stocks have had a VERY good run since the early 90's. I feel like most people look at index funds that date back to only the 90's or later, and conclude that international is worse for the future. But I've seen the data that dates back to the 60's, and even some more broad data that dates back hundreds of years. Any particular country is not more or less likely to outperform in the future, so we should just buy the entire world at market cap weight, not just the US
My main concern is how much I can benefit from global development as a US based investor. For example, there are definitely some Chinese companies that could be worth holding, but I don't really trust the government to prioritize me as a non-Chinese shareholder.
@@ordinaryhuman5645 Yeah, those are real risks, but you can just trust that the market will take those risks into consideration for you. In the long run, all information is baked into the price of any stock on the public market. It's the nature of the efficient markets hypothesis. Besides, once those risks become reality, the market will just correct itself and move its money from worse investments to better investments. No matter where the money in the stock market transfers from/to, you are unaffected as a global diversified buyer
@@ordinaryhuman5645 Yeah that's a real risk, but if you're a believer of the efficient markets hypothesis, then the risks are already built into the share prices. So you just follow what the market dictates, because ALL information, including risk, is already baked in
I work for a Texas county. Mandatory 7% taken out, once you are vested and retire they will match your account at 210%. I also started a 457(B) @ $400 a month in a black rock account. I have military retirement as well. My question is, is it ok to have multiple investments like this, so at retirement you can pull from one and have others that are not touched? Or do people invest in just one account throwing everything they have into it?
Your county plan sounds like a pension, not an investment account, so set that aside for a moment. Diversifying your portfolio in retirement is done more in terms of qualifying (taxable/traditional) and non-qualifying (not taxable Roth). Unless you are doing early SEPP withdraws, the number of accounts you have doesn't matter at all. It's all about tax planning and which distributions will and will not be taxable and what your tax rate is now versus your expected rate in retirement.
@@JoeFromSomewhere2303 FDIC does not insure brokerage accounts unless you happen to be in a qualifying cash fund...if your brokerage firm offers one. Most firms use money market funds for brokerage which are not FDIC. Investment accounts are covered under SIPC which also has limit. I think the OP is askUng about retirement accounts though, not brokerage investment accounts.
Marine here and VHA Employee. I had multiple accounts and platforms but consolidated later in my fifties. You certainly can continues but will likely want to consolidate. If you are married or have someone to give this money to once you kick the bucket they will not be able to unravel your life. My mom had tons of accounts and it took me three years to figure where everything was. Don’t do that to your family, friends, or heirs. In reality you have more options than most people. Those people throw everything at one account because it is all they have.
@@wdeemarwdeemar8739 How do you take a county pension, a military pension, and a 457(B) and combine it into a single account? If that's possible, I'd be very interested in understanding how you did that.
@@1-Wheel-Drive Yea, but taking a lump sum payout is definitely not a decision you should make just for convenience and reduced confusion for your beneficiaries. There are real financial differences when doing that. The other commenter wdeem..8739 spoke as if there was some other way of consolidating.
I'm using VOO in my brokerage account, along with some small exposure in BND and QQQM for additional tech. I like State Street and their new S&P fund (SPLG) is less expensive than VOO on the expense ratio. Using that in my retirement accounts.
We are all in for our Stock Portfolio on S&P 500 (401K and other all through Vanguard!) But, we also have a significant portion of our Portfolio invested in Rental Houses!)(Real Estate!) Hopefully that offers us enough Diversity! I know I’m a dreamer but, would like to build them to be able to live off either!
I'm also a total stock market (FSKAX) with a 25% SCP value tilt that brings more than enough volatility excitement into the portfolio each year. Great content!! Thank you!!
While most of my stuff is in a total stock market fund, the market weighting of these types of funds means that the difference between the SP500 and a total market fund is not that different as the 501 largest and smaller companies just don't pull that mich weight. Or another words, it take a lot of 501+ companies to equal the market cap of one NVidia or Microsoft. It isn't until you get into something like a Russel 2000, where it specifically avoids all the big-boys in the market, that you start to see meaningful deviations from the SP500.
Hi Erin, can you do a video on how to invest rollover 401k money into Vanguard index funds (traditional IRA). Should the money be held in cash (other than the required minimum for each fund) and then autopilot the weekly investment to each fund in order to cost averaging?
VTSAX is my major tracking fund. Where I work I'm pretty much stuck with the S&P but it's fine. I thinking as I get older I'm going to start to move into SCHD, I do have some VYM but I like SCHD a little better.
Large Cap growth is the best. If I bought every ETF by market cap and total value in it, the SP500 would take up a third of the amount. That should let you know right there where your money can go. In fact that is what I would do is match that out by 1% so that it is impossible for them to manipulate you out and you will likely have the liquidity and inflation protection that you need.
Right now large cap stocks outperform the others, but this might not be the case in 5 or 10 or 15 years... better to diversify and save your own ass if things go south in large cap. historically small cap outperformed large
@@jeffkoons001 I think it is monetary policy and large caps tend to outperform when interest rates are significantly low and there is low economic growth. I think large caps over 1 trillion do not have a lot of room for growth unless the company starts to buyback shares. 1/5 of the relative money supply is in the top 10 stocks of apple to elly lilly. I think we are going to see international stocks outperform with taiwan semiconductors, NVO, etc do better. Small caps are likely back because of this so I agree. My sentiment has changed since this previous message. Main reason Costco has a 55 P/E ratio with stable growth. That price is high. Apple is likely to become a value stock instead of a growth stock and I think that will change the allocations as well. Could be a wild 2026.
