Why invest with us when you can simply buy an index fund with your savings? Good question. When costs are low, why not buy cheap funds? It’s worked out well so far, right? The problem is it may not last forever, and a downturn may not happen on your schedule.
That’s one reason I like individual stocks. With them, you may have more control. Another is that stock commissions are basically free, which levels the playing field.
You can see how the index fund has become a commodity, with everyone jumping in the same boat. A forced buying strategy, regardless of anything else other than it must be bought because it’s in the index. But what happens when Baby Boomers start selling to fund their retirement?
When I think about this strategy, it makes me think of one phrase: Time is running out.
When the S&P 500 gets top-heavy, you need to have time on your side if a big correction comes your way, especially in retirement. Because in retirement, you no longer have all the time in the world. Buying an index fund when you’re young may work wonders, but maybe not when you’re in retirement. Many will have to wait and see.
Look at the top names in the S&P 500, and you can see how much weight they carry in percentage terms. As a market cap weighted index, it’s the big dogs that row the boat. But what happens if they fall overboard?
Top 10 S&P 500 constituent companies as of July 25, 2024:
- MICROSOFT (MSFT): 6.99%
- APPLE (APPL): 6.91%
- NVIDIA (NVDA): 6.16%
- AMAZON.COM, INC (AMZN): 3.63%
- ALPHABET INC CL A (GOOGL): 2.22%
- META PLATFORMS INC, CLASS A (META) 2.22%
- ALPHABET INC CL C (GOOG): 1.87%
- BERKSHIRE HATHAWAY (BRK.B) 1.72%
- ELI LILLY (LLY) 1.50%
- BROADCOM (AVGO) 1.45%
Action Line: A more equally weighted approach in constructing a diversified portfolio can help you avoid sector weighting risk. This isn’t a casino. It’s your retirement. When you’re ready to talk, let’s talk. But only if you’re serious.
Originally posted on Your Survival Guy.
