S&P 50 now nondiversified?

[racy]

I was curious about the "haystack" VTWAX. The top 10 holdings are:
NVIDIA Corp.
Apple Inc.
Microsoft Corp.
Amazon.com Inc.
Alphabet Inc. Class A
Broadcom Inc.
Alphabet Inc. Class C
Facebook Inc. Class A
Tesla Inc.
Taiwan Semiconductor Manufacturing Co. Ltd.

 

[thenameiwish]

You actually did the research. Very nice.
It sorta looks like the SP 500, but it's early so...

 

[Al18]

The top 10 holdings in a dividend fund such as VYM are quite different:
AVGO
JPM
XOM
JNJ
WMT
ABBV
BAC
HD
PG
CSCO

These top 10 holdings represent 27.1% of the fund.

 

[OldShooter]

I was curious about the "haystack" VTWAX. The top 10 holdings are: ...

Not much of a surprise. VTWAX/VT are cap weighted and about 2/3 of the assets are US based companies.

The alternative, which someone has already pointed out, would be equal-weighted funds. IMO these will be difficult to administer and will throw off income and capital gains as the portfolio churns. I have not paid much attention to them but my impression is that their total return is nothing to write home about. Maybe someone with more familiarity can comment?

 

[Stormy Kromer]

I am a VG index fund guy. That said, you could do a heck of a lot worse than investing in their SP 500 fund. I hold it along with Total Stock Fund and Tax Managed Capital growth. If you were blindfolded for 20 years you would never know the difference. Last time I looked, the SP 500 had the best 10 year return. I would be happy if it was my only choice.

Take a look at the top holding of these three funds and it is extremely similar. To argue the difference is mute.

I have about 15% in VG International, it had a great year in 2025 but still falls way behind in a long term average. I'll keep it anyway.

Happy investing everyone.

 

[Koolau]

I am a VG index fund guy. That said, you could do a heck of a lot worse than investing in their SP 500 fund. I hold it along with Total Stock Fund and Tax Managed Capital growth. If you were blindfolded for 20 years you would never know the difference. Last time I looked, the SP 500 had the best 10 year return. I would be happy if it was my only choice.

Take a look at the top holding of these three funds and it is extremely similar. To argue the difference is mute.

I have about 15% in VG International, it had a great year in 2025 but still falls way behind in a long term average. I'll keep it anyway.

Happy investing everyone.

Sounds pretty similar to my portfolio. Not overly worried about the concentration though readily admit it limits actual diversification. I keep enough cash-like balancing funds that I sleep very well at night (and sometimes, even in the afternoon).

 

[bobandsherry]

Yes but why stop at 500 (well 503 actually). VTI has over 3,500.

The SP500 has outperformed VTI almost every year. Something I'm missing?

 

[mrfeh]

The SP500 has outperformed VTI almost every year. Something I'm missing? View attachment 61528

Don't choose funds on their 10 year performance.

 

[target2019]

Don't choose funds on their 10 year performance.

Yes, 10-year performance is the beginning of analysis, but there's much more data to consider.

 

[disneysteve]

The SP500 has outperformed VTI almost every year. Something I'm missing? View attachment 61528

No you aren’t missing anything but this thread is about diversification. Owning 3,500 stocks is more diverse than owning 500.

 

[Lorenzo]

No you aren’t missing anything but this thread is about diversification. Owning 3,500 stocks is more diverse than owning 500.

In theory, yes, but if VTI is so heavily weighted by the same top few tech holdings as VOO, do the bottom couple of thousand holdings in VTI have any effect at all?

 

[Chuckanut]

Over time companies grow and shrink. With time some of the Magnificent 7 will grow weak and fall back in value. Somewhere in the current 500 there probably is a replacement company that is working its way up.

I say this as somebody who once worked for the the largest retailer in the USA. Today, they are only a weak shadow of their former self. I read where only five of their department stores still exist. But, I still have their socket wrench and it still works. And I spend far more money at WalMart and Costco than I ever spent at my former employer.

 

[bobandsherry]

No you aren’t missing anything but this thread is about diversification. Owning 3,500 stocks is more diverse than owning 500.

From a diversification perspective, VTI doesn't really give you a lift. About 80-85% of it is already the S&P 500, so performance is driven by the same large-cap names either way. Those 3500 additional stocks are such a small slice and sounds good in theory, but it’s mostly added volatility with long stretches of underperformance and little impact on returns. Being diverse is worse.

VOO gives plenty of real diversification across sectors, business models, and global revenue through dominant, profitable companies, so the incremental diversification VTI adds isn’t very meaningful on a risk-adjusted basis.

 

[bobandsherry]

Don't choose funds on their 10 year performance.

Not sure if you think 10 years is too long or too short. But let's look at the long handle on this, the max chart back to 2001 and VOO still outperforms VTI, more separation recently.

 

[Montecfo]

If a boglehead abandons broad cap weighted index funds doesn't that require a change of religion?

Cap-weighted indexing has always been momentum investing. Nothing has changed.

 

[bobandsherry]

Over time companies grow and shrink. With time some of the Magnificent 7 will grow weak and fall back in value. Somewhere in the current 500 there probably is a replacement company that is working its way up.

I say this as somebody who once worked for the the largest retailer in the USA. Today, they are only a weak shadow of their former self. I read where only five of their department stores still exist. But, I still have their socket wrench and it still works. And I spend far more money at WalMart and Costco than I ever spent at my former employer.

I recall back in the 80's people thought that retailer would dominate the world. Allstate insurance, Dean Witter financial services, Coldwell Banker, and top brands like Craftsman, Diehard, Kenmore, and also launched their own credit card Discover. And remember their joint venture on Prodigy with IBM? How could anyone screw that up? Guess we found out. Sears had their own diversification and it failed.

 

[Spock]

The counterweight to broadly "diversified" funds is what is currently happening in my Fidelity Dividend SMA. I started one last month at 100K to see what it would do differently as I can barely tread water with bonds and sink completely with equities.

In parallel I opened another brokerage account with the exact same seed amount that I semi-actively run myself with about 10 funds (SCHD, etc) for comparison.

The SMA bought 95(!) stocks and funds. 29 of those have a cost basis of $500 or (a lot) less. 12 started with $2K or more.
The largest % gainer so far at 20% has gained a whopping $149.
The second gainer has gone up 17%... from $175.21 to to $205.63.. $30.42.

So yeah. The SMA is "diversified"... to the point that these little <0.2% holdings move up big and have absolutely no impact on moving the needle of the overall account.

A $h!+ ton of tiny stocks in amongst a handful of whale sized holdings is not "diversified".

So far (it's still very early in the experiment) all I've learned is Fidelity better give me free TurboTax next year and it better be able download this accounting mess automatically.

 

[mrfeh]

Not sure if you think 10 years is too long or too short. But let's look at the long handle on this, the max chart back to 2001 and VOO still outperforms VTI, more separation recently.

View attachment 61532

It's noise.

Past performance does not guarantee future results. It's not just legalese - it's true.

 

[bobandsherry]

It's noise.

Past performance does not guarantee future results. It's not just legalese - it's true.

Agree, no guarantee, but if you look back to 25 year trend it's the best guide we have, short of the Magic 8 Ball. Unless something is going to significantly change in the future I don't see why we'd expect much deviation.

 

[Al18]

Some people treat their finances like a car race. Not me - I’m happy to finish in the top 20%.

 

[SnowballCamper]

Clickbait headline. Diversified is relative. No single stock is diversified, no single fund is diversified, no single index is diversified. Check out the periodic table of investments:

 

[OldShooter]

Does

Clickbait headline. Diversified is relative. No single stock is diversified, no single fund is diversified, no single index is diversified. Check out the periodic table of investments:

Not sure what your point is. Any total market fund or total market index is by definition diversified, containing all the stocks in the subject market, especially if that market is the world, like VT.

The quilt chart really has nothing to do with the question of diversification.

 

[Diogenes]

From a diversification perspective, VTI doesn't really give you a lift. About 80-85% of it is already the S&P 500, so performance is driven by the same large-cap names either way. Those 3500 additional stocks are such a small slice and sounds good in theory, but it’s mostly added volatility with long stretches of underperformance and little impact on returns. Being diverse is worse.

Yup, the top few names dominate the Essen Pea Five Hundred, which in turn dominates the entire US public stock market. Holding a domestic-stock total index fund is by a certain kind of reckoning a bet on Apple, Nvidia and Microsoft.

What we mean by "effective" diversification is actually a tilting away from the market portfolio, overweighting things like small-caps or ex-US stocks. This is a deliberate choice of haystacks, for where the needles are going to be... to repurpose the oft-quoted Boglehead adage. So if I really believe that Nvidia is overvalued and AI is going to crash and so on, I need to overweight - beyond its market weighting - the Russell-2000, or the MSCI EAFE or something like (or their index-fund equivalents).

 

[ut2sua]

Yup, the top few names dominate the Essen Pea Five Hundred, which in turn dominates the entire US public stock market. Holding a domestic-stock total index fund is by a certain kind of reckoning a bet on Apple, Nvidia and Microsoft.

This ^^^ snapshot view of the S&P500 makes things look more scary than it needs to be. Let's say in 10 years, Apple, Nvidia and Microsoft all got bankrupted (imaginary scenario here), the only thing the S&P500 investors care about is the performance of the S&P500 over that time period. If one assumes that the SP500 will crash to the bottom and can't recover (due to the above companies going to zeroes), that most likely will not be the case. One only needs to look back when IBM, GE etc. were the huge stocks within the index that "crashed" into much smaller companies, the SP500 didn't do badly over long period of times while absorbing all those stock crashes. One feature of an index such as the SP500 is the natural cycling-in of strong, high performed companies, AND the natural cycling-out of failed, weaken companies. I am too lazy to check, but I am sure at one point Apple (yes the great Apple) was kicked out of the S&P500 when its stock was value at ~$2/share.
As long as the SP500 will continue to do well, one does not need to worry which stocks are in there.

 

[bobandsherry]

This ^^^ snapshot view of the S&P500 makes things look more scary than it needs to be. Let's say in 10 years, Apple, Nvidia and Microsoft all got bankrupted (imaginary scenario here), the only thing the S&P500 investors care about is the performance of the S&P500 over that time period. If one assumes that the SP500 will crash to the bottom and can't recover (due to the above companies going to zeroes), that most likely will not be the case. One only needs to look back when IBM, GE etc. were the huge stocks within the index that "crashed" into much smaller companies, the SP500 didn't do badly over long period of times while absorbing all those stock crashes. One feature of an index such as the SP500 is the natural cycling-in of strong, high performed companies, AND the natural cycling-out of failed, weaken companies. I am too lazy to check, but I am sure at one point Apple (yes the great Apple) was kicked out of the S&P500 when its stock was value at ~$2/share.
As long as the SP500 will continue to do well, one does not need to worry which stocks are in there.

That's a good take on the SP500 being a self-cleaning machine, only the strong remain. As long as you believe the U.S. economy will produce some winners, it doesn't really matter who they are. The index will find them and kick out the losers. As a point of reference out of the original 500 companies from 1980, only 60-70 are still there today. Even if you count the mergers and name changes, you’re still looking at less than a third surviving.

As for Apple, it was never removed, even as it seemed to be on the verge of bankruptcy. So that shows SP500 isn't as swift to remove the dead weight, the committee obviously felt there was underlying reason to keep.

Below is the top10 companies in the SP500 over the past decades. Interesting to see not only the names that are no longer in the top10, but also the change in the mix. Traded oil for tech, indication that it's far from static.

Rank	1980 (22% of total)	1990 (19% of total)	2000 (23% of total)	2010 (19% of total)	2025 (41% of total)
1	IBM	IBM	Microsoft	Exxon Mobil	NVIDIA
2	AT&T	Exxon Mobil	GE	Apple	Apple
3	Exxon Mobil	GE	Cisco	Microsoft	Microsoft
4	Standard Oil (IN)	Philip Morris	Intel	Berkshire Hathaway	Amazon
5	Schlumberger	Shell	Walmart	GE	Alphabet (Google)
6	Shell	Bristol-Myers	Exxon Mobil	Walmart	Meta (Facebook)
7	Mobil	Walmart	Oracle	Google	Tesla
8	Standard Oil (CA)	Coca-Cola	Lucent	Procter & Gamble	Broadcom
9	Atlantic Richfield	Merck	Pfizer	Apple	Berkshire Hathaway
10	GE	P&G	Citigroup	Johnson & Johnson	Eli Lilly

Edit to add the Top 10 Concentration for each above. Interesting to see the shift how top heavy the top 10 is now relative to the past.