S&P 500

Discussion of the Stock portion of the Permanent Portfolio

Moderator: Global Moderator

Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: S&P 500

Post by Kbg » Thu Dec 19, 2019 5:58 pm

You don’t have to buy a cap weighted index, you can buy an equal weighted one, a factor based one, or skip large cap altogether. Why complain when there are so many alternatives?

The method is the method.

Now historically when these huge caps decide to take a nose dive you are going off the board with them, this is a known for anyone who has done their homework. Your alternative options are use something else or try your hand at market timing.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: S&P 500

Post by ochotona » Thu Dec 19, 2019 7:07 pm

FYI...

Equal weight SP500 performs almost exactly like cap weighted Large Cap 45% and Mid Cap 55%

I think that's very interesting.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: S&P 500

Post by Kbg » Thu Dec 19, 2019 9:02 pm

My last post probably sounds like I was dissing on boglerdude which was not my intent, but yeah, equal weight avoids the problem bd pointed out. In a way it IS a problem no doubt...but the flip side is you are also loading up on America's most successful companies. [strike]Large[strike] cap weighted is sorta Darwinian in how it works. And to be redundant, there are worse things you could do with your money. What is amazing to me is not only how narrow the market is but how long this effect has been in place. It's quite incredible really.
Last edited by Kbg on Tue Dec 24, 2019 9:30 am, edited 1 time in total.
boglerdude
Executive Member
Executive Member
Posts: 1313
Joined: Wed Aug 10, 2016 1:40 am
Contact:

Re: S&P 500

Post by boglerdude » Fri Dec 20, 2019 9:51 pm

the question wasnt answered, is cap weighting what the efficient market recommends? If you buy total market index do you own, for example, 1% of each company in the index? So you dont own "more Apple" than anything else. Apple has more revenue than small companies
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: S&P 500

Post by Kbg » Tue Dec 24, 2019 9:35 am

Short answer, yes.

Total Market is still cap weighted it just adds smaller companies. Perhaps someone can correct but I think with total market you get like 20% small to mid caps and the rest is still large cap...which gives you an idea of how big large caps are.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9422
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: S&P 500

Post by vnatale » Fri Oct 08, 2021 9:55 pm

I had always thought that when I finally fully implement the Permanent Portfolio....that the stock portion would be the easiest to implement.

Just buy Vanguard's Total Stock Market fund. Though the below article focuses on Vanguard's S&P 500 fund....as he points out a lot of its details also somewhat apply to the Total Stock Market fund.

Do some of you rather than buying the Total Stock Market Fund...buy three index funds? Large-cap, Mid-cap, Small-cap?

Finally what do you think of his S&P 500 Equal Weight index analysis and recommendation?

Vinny




The Truth About Index Funds

https://www.kiplinger.com/investing/ind ... ndex-funds

"You may think you're diversified by buying an S&P 500 Index fund, but you're making a substantial wager on a handful of stocks

Any cap-weighted index fund is a heavy bet on larger companies. Lately, that bet has become extremely heavy because a few stocks have become gigantic. In 2011, for example, the total market cap of the 10 biggest S&P 500 stocks was $2.4 trillion. Currently, it’s $13.7 trillion. Apple itself has a cap as large today as all 10 of the largest S&P stocks combined a decade ago.

Or consider simply the five trillionaire stocks I highlighted recently. All by themselves, Alphabet (GOOGL), Amazon.com (AMZN), Apple, Facebook (FB) and Microsoft (MSFT) represent 22% of the value of the S&P 500. In recent years, those stocks have been on a tear, and the index has benefited.

Targeted Bet

You may think you are getting broad diversification by buying an S&P 500 Index fund, but you are actually making a substantial wager on a handful of stocks in the same sector. As of July 31, infor­mation technology, Apple's category, and communications services, the sector of Facebook and Alphabet, Google's parent, represent a whopping 39% of the S&P 500. By contrast, energy represents just 2.6%."

"The five trillionaire stocks represent about 18% of the asset value of Vanguard Total Stock Market (VTI), the most popular of the ETFs based on such indexes;"

"I still like the trillionaires, and I like technology, but I have decided no longer to deceive myself by thinking that most index funds tracking the S&P 500 are the best way to own the U.S. market."

"The Equal-Weight Solution

There are, however, ways to avoid loading up on a few stocks, or any one sector.

One is the S&P 500 Equal Weight Index. Each stock represents roughly 0.2% of total assets (there are actually 505 stocks in the S&P 500 Index), with rebalancing at the end of each quarter. As a result, every time the index is rebalanced, the trillionaires account for about 1% of assets; technology and communi­cations, 20%. Over the past 10 years, the S&P 500 has beaten its equally weighted cousin by about one percentage point, annualized, but that's hardly unexpected in a great decade for big growth stocks."

"Invesco S&P 500 Equal Weight (RSP), an ETF with an expense ratio of 0.2%, offers an easy way to buy the index. Be warned that its turnover, at 24%, is much higher than a standard broad market index fund's turnover, so it's best to own it in a tax-deferred account such as an IRA."

"I'm not telling you to avoid conventional broad-market funds. Notice that I am still recommending them. I'm just saying there are other ways to get better diversification and come close to really owning the U.S. stock market."
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
Post Reply