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S&P 500 Index
Old 07-19-2018, 04:59 PM   #1
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S&P 500 Index

This will be another question which will show my lack of intelligence on how things work in the financial world. LOL

So I have a small percent invested in the S&P 500. So how does that work and how it works to be invested in S&P as an Index fund?

Is it good or bad to be part of the S&P?
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Old 07-19-2018, 05:08 PM   #2
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An S&P index fund is maybe the most popular stock purchase. Warren Buffet recommends it.

That said, it is a sector fund. You are investing ONLY in the 500 largest capitalization US companies. You have no stake in mid-size and small companies. You also have no stake in the half of the world's stocks that are not US stocks.

A purist (like me) would say that a total world market index fund is a better, more diversified investment. A practical person, particularly one who doesn't want to invest in "furrin" stocks would point out that the S&P is 80% of the US market capitalization, so you have a finger in most pies.

So it's not super good IMO but it is certainly not bad.
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Old 07-19-2018, 05:46 PM   #3
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Thanks that was a great explanation. So when you say "world market index fund" is that the same as International or Global market funds?
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Old 07-19-2018, 06:04 PM   #4
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Thanks that was a great explanation. So when you say "world market index fund" is that the same as International or Global market funds?
Well, you have to be careful. The nomenclature is not completely standardized. Generally "global" will refer to everything and "international" will refer to non-US stocks. But read carefully.

My favorites are Vanguard (of course!):

VGTSX which is non-US and often paired with the all-US VTSMX fund in a ratio to suit the investor's taste for non-US exposure.

-or-

VTWSX, which is the whole world. It varies as sectors wax and wane, but US stocks are in the range of 50% of the total in the fund. This is our current strategy, up from an international allocation of 30%. That (30%) seems to be a pretty popular number.

There are also ETF versions of these funds. Someone will be along shortly to argue for buying ETFs. There are reasons I do not but they are out of scope here.

There is quite a good video here on home country bias: https://famafrench.dimensional.com/v...home-bias.aspx
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Old 07-19-2018, 06:10 PM   #5
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People seem to like the 500 index because it is easy to check up on. Most "newspapers", TV newscasts and financial web sites quote it daily. There are other mutual funds that will spread your money over more stocks, but you might have to dig a little to get your daily update.

Not a bad strategy, if you just want to invest and forget it. Or do a little research (Old Shooter has good suggestions) and spread your funds around a little more-maybe even outside the US.
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Old 07-19-2018, 07:31 PM   #6
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Thank you again for the help it is very much appreciated.
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Old 07-19-2018, 07:50 PM   #7
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Originally Posted by OldShooter View Post
An S&P index fund is maybe the most popular stock purchase. Warren Buffet recommends it.

That said, it is a sector fund. You are investing ONLY in the 500 largest capitalization US companies. You have no stake in mid-size and small companies. You also have no stake in the half of the world's stocks that are not US stocks.

A purist (like me) would say that a total world market index fund is a better, more diversified investment. A practical person, particularly one who doesn't want to invest in "furrin" stocks would point out that the S&P is 80% of the US market capitalization, so you have a finger in most pies.

So it's not super good IMO but it is certainly not bad.
A purist in what? I'm happy with 100% of my equity side in VTSMX(vanguard total us stock market, as John Bogle says you get enough international exposure from the the big US multi-national companies.
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Old 07-19-2018, 07:53 PM   #8
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For awhile in my 401k the only low fee fund they had was a S&P 500 fund so I had most of my money in it. But, it bothered me that I didn't cover all the US market. In Vanguard, I separately bought from an international fund. And, I bought some of the extended market fund which covers the part of the US market that isn't covered by the S&P 500 fund.
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Old 07-19-2018, 09:02 PM   #9
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I think overall it's good to have a certain percentage invested in the SP500. I have about 20% of my investable assets in the index. When you buy it, you get a lot of big, individual companies, traditionally profitable too with a history. So I think it deserves a spot in ones portfolio for the stock portion.
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Old 07-19-2018, 09:07 PM   #10
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I think overall it's good to have a certain percentage invested in the SP500. I have about 20% of my investable assets in the index. When you buy it, you get a lot of big, individual companies, traditionally profitable too with a history. So I think it deserves a spot in ones portfolio for the stock portion.
I also favor your thinking and why wouldn't investors want at least a dab of it.
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Old 07-19-2018, 09:09 PM   #11
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For awhile in my 401k the only low fee fund they had was a S&P 500 fund so I had most of my money in it. But, it bothered me that I didn't cover all the US market. In Vanguard, I separately bought from an international fund. And, I bought some of the extended market fund which covers the part of the US market that isn't covered by the S&P 500 fund.
I had this problem at my current employer. I complained to the comptroller in charge of communications between our shwab retirement plan rep and the company. Voila. Now I have all of my current 401k in SCHG and I'm appreciating the gains from the increased opportunity.
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Old 07-19-2018, 09:46 PM   #12
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Heard the other day that most of the gains of the S&P for the past year or so comes from the FAANG stocks.

I don't know if all of them are in the S&P but the ones which are, like AAPL, have such a huge market cap that when they move, they move the whole index.

So maybe S&P diversification isn't what it used to be?
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Old 07-20-2018, 01:32 AM   #13
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https://en.m.wikipedia.org/wiki/S%26P_500_Index

Above is Wikipedia of S&P500. Gives history. It is not the 500 largest companies. Companies to be included have to meet certain criteria and be selected by a committee. To my surprise, I think it even said there were nonUS companies in it. How the index is weighted and so forth is explained.
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Old 07-20-2018, 05:25 AM   #14
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Quote:
Originally Posted by Katsmeow View Post
For awhile in my 401k the only low fee fund they had was a S&P 500 fund so I had most of my money in it. But, it bothered me that I didn't cover all the US market. In Vanguard, I separately bought from an international fund. And, I bought some of the extended market fund which covers the part of the US market that isn't covered by the S&P 500 fund.
Same with my wife's 401K. I don't know why they don't offer VG Total Market (all US) but they do have VG S&P 500 and VG Extended Market. so we use those.
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Old 07-20-2018, 06:35 AM   #15
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Quote:
Originally Posted by Katsmeow View Post
For awhile in my 401k the only low fee fund they had was a S&P 500 fund so I had most of my money in it. But, it bothered me that I didn't cover all the US market. In Vanguard, I separately bought from an international fund. And, I bought some of the extended market fund which covers the part of the US market that isn't covered by the S&P 500 fund.
^^^ Good idea.

I've also done that to sidestep Vanguard's sometimes nonsensical frequent trading restrictions. I recall a number of years ago that I wanted to harvest some tax gains and if I sold Total Stock I could not buy it back again for a period of time... I tried to explain to the rep that I was just doing a sell and buy the same day so it was only an accounting entry and wouldn't affect the fund at all.... but the rules are the rules when you are dealing with Vanguard.

So I sold Total Stock and bought S&P 500 and Extended Market funds (65/35 as I recall) and effectively side-stepped the frequent trading restriction.
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Old 07-20-2018, 08:08 AM   #16
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Heard the other day that most of the gains of the S&P for the past year or so comes from the FAANG stocks.

I don't know if all of them are in the S&P but the ones which are, like AAPL, have such a huge market cap that when they move, they move the whole index.

So maybe S&P diversification isn't what it used to be?
I think it has always been like that - dominated by a few stocks. The dominating stocks though change around quite a bit.
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Old 07-20-2018, 08:19 AM   #17
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Fun thread!

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Originally Posted by brucethebroker View Post
People seem to like the 500 index because it is easy to check up on. Most "newspapers", TV newscasts and financial web sites quote it daily. There are other mutual funds that will spread your money over more stocks, but you might have to dig a little to get your daily update. ...
Yes, but @street, uinderstand that watching a portfolio daily can be very hazardous to your financial health. I watch the market daily as kind of an abstract spectator sport but DW and I only look seriously at our portfolio once a year, between Christmas and New Year. At that I would say that we only make a strategic trade every two or three years.
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A purist in what? ...
A purist in the church of academic research, aka Fama and French. If you haven't clicked on the video link in my Post #4, I encourage you to do it. Ken French will explain.

Gene Fama simply says: "You have to hold the market portfolio." IOW, everything.

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... John Bogle says you get enough international exposure from the the big US multi-national companies.
Yes. But remember that Bogle did not achieve his fame by being a successful investor. He built the mutual fund company that we all benefit from, that made passive investing a reality for us little guys. The academic research says he is simply wrong on this and, more specifically, with the recent outperformance by US stocks, regression to the mean may well make non-US stocks the winners in the next decade. No one knows, of course.

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I think overall it's good to have a certain percentage invested in the SP500. ...
Absolutely. But understand that if you hold a total US market fund, about 80% is in S&P stocks. In fact, there are current debates about whether cap-weighted indices are the best idea and whether tilting a portfolio away from the S&P by buying extended market funds might be a good idea. Five or ten years of future history will tell us the answers. For our portfolio I am simply buying the world in cap-weighted index funds and sitting back to watch the action. I have no crystal ball.

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Heard the other day that most of the gains of the S&P for the past year or so comes from the FAANG stocks. ... So maybe S&P diversification isn't what it used to be?
Yes. Hence the discussions about other index weightings besides market cap and portfolio tilts away from the S&P.

Another factor, not yet mentioned, is that with the massive success of indexing, even among naive investors, much of that money has flowed into the S&P. The argument then is that this flow may have overvalued the S&P relative to the rest of the world's stocks. Yet another thing that five or ten years of future history will tell us.
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Old 07-20-2018, 07:27 PM   #18
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Fun thread!

Yes. But remember that Bogle did not achieve his fame by being a successful investor. He built the mutual fund company that we all benefit from, that made passive investing a reality for us little guys. The academic research says he is simply wrong on this and, more specifically, with the recent outperformance by US stocks, regression to the mean may well make non-US stocks the winners in the next decade. No one knows, of course.
Regession to what mean, The world has change so much what is the mean?

The trouble with academic research is they only look at numbers, they don't look at world events or history.

But lets look at some numbers I'll start with 1986,the year I separated from the US Navy and started my 1st job with a 401k. started $10k and put $200 a month til now.

global total stock market ex US $387,961

total US stock market $912,247

50/50 the above two rebalanced annually $614,127

Now I Retired in 2014 but the numbers above are for 32 years and the out performance isn't just the recent years.

Oh and about your little dig "one who doesn't want to invest in "furrin" stocks" You like to put down the other people as uneducated. I would say the practical person was the smart one.
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Old 07-21-2018, 04:12 AM   #19
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You might also consider RSP, which is the S&P 500 but equal weight instead of market cap weighted, or FSTVX, which is total US market - all size stocks but no international.
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Old 07-21-2018, 05:59 AM   #20
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Regession to what mean, The world has change so much what is the mean?

The trouble with academic research is they only look at numbers, they don't look at world events or history.

But lets look at some numbers I'll start with 1986,the year I separated from the US Navy and started my 1st job with a 401k. started $10k and put $200 a month til now.

global total stock market ex US $387,961

total US stock market $912,247

50/50 the above two rebalanced annually $614,127

Now I Retired in 2014 but the numbers above are for 32 years and the out performance isn't just the recent years.

Oh and about your little dig "one who doesn't want to invest in "furrin" stocks" You like to put down the other people as uneducated. I would say the practical person was the smart one.
You did very well in your investments.
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