VTI, S&P500 still so top heavy

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the_wiki
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VTI, S&P500 still so top heavy

Post by the_wiki »

How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
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burritoLover
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Re: VTI, S&P500 still so top heavy

Post by burritoLover »

That's the risk of a market-cap weighted equity position from a single country (among others).
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Re: VTI, S&P500 still so top heavy

Post by Mike Scott »

So do something different... https://www.bogleheads.org/wiki/Equal_weighted_indices and/or add some tilt to mid and small index funds. I believe the "center of the indexing universe" is generally cap weighted so you may want to think through and read all the previous discussions about the possible advantages/disadvantages of moving away from cap weighting and tilting specific directions.
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Re: VTI, S&P500 still so top heavy

Post by NateH »

It is rationalized because the market participants price those shares at those values, in what is believed to be an efficient market. Cap-weighted large cap indexes (Us & Foreign) all have this same problem, if you view it as a problem.

Reducing bubble risk is one reason why slice & dicers tilt away from Large Growth and seek out asset classes with low correlation.
4X top-twenty S&P 500 prognosticator. I'd start a newsletter, but it would only have one issue per year.
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Re: VTI, S&P500 still so top heavy

Post by exodusNH »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
This is always how it's been. A few large companies dominate the market. There's a video floating around in YouTube that shows how it's changed over the years.
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Re: VTI, S&P500 still so top heavy

Post by arcticpineapplecorp. »

exodusNH wrote: Tue Nov 22, 2022 1:49 pm This is always how it's been. A few large companies dominate the market. There's a video floating around in YouTube that shows how it's changed over the years.
there's quite a few actually:

https://www.youtube.com/watch?v=X6MSQ6n-3YA
https://americanbusinesshistory.org/lar ... 1994-2018/
https://www.youtube.com/watch?v=kfMFDcuDKYA
https://www.qad.com/blog/2019/10/sp-500 ... -over-time
Last edited by arcticpineapplecorp. on Tue Nov 22, 2022 1:56 pm, edited 1 time in total.
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Re: VTI, S&P500 still so top heavy

Post by GP813 »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.

How many different ways do Microsoft, Alphabet(Google), Amazon, and Apple make money? They're huge companies by market cap because they're huge businesses. Google currently has a lower P/E ratio than Pepsi or Coca-Cola.
Last edited by GP813 on Tue Nov 22, 2022 1:56 pm, edited 1 time in total.
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Re: VTI, S&P500 still so top heavy

Post by the_wiki »

exodusNH wrote: Tue Nov 22, 2022 1:49 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
This is always how it's been. A few large companies dominate the market. There's a video floating around in YouTube that shows how it's changed over the years.
Interesting little blog post that may prove your point:

https://www.personalfinanceclub.com/her ... -50-years/

According to that chart, IBM was 8.5% of S&P 500 in 1970s.
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Re: VTI, S&P500 still so top heavy

Post by the_wiki »

GP813 wrote: Tue Nov 22, 2022 1:55 pm
How many different ways do Microsoft, Alphabet(Google), Amazon, and Apple make money? They're huge companies by market cap because they're huge businesses. Google currently has a lower P/E ratio than Pepsi or Coca-Cola.
Amazon is down 44% this year which means it didn't matter how many ways it was earning money.
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Re: VTI, S&P500 still so top heavy

Post by SimpleGift »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy?
Not sure it's accurate to characterize the cap-weighted S&P 500 index as "top heavy," since the few top companies are where a large percentage of the earnings from index companies has historically come from (chart below).
Global investors are simply valuing the top 10 companies in accord with their earnings and their perceived future earnings potential.
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Re: VTI, S&P500 still so top heavy

Post by Triple digit golfer »

Why do you think it's less diversified?

If Apple makes up 5% of the market but split up into 100 different companies, with each new company making up 0.05% of the market, would you still feel this way?
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Re: VTI, S&P500 still so top heavy

Post by GP813 »

the_wiki wrote: Tue Nov 22, 2022 2:05 pm
GP813 wrote: Tue Nov 22, 2022 1:55 pm
How many different ways do Microsoft, Alphabet(Google), Amazon, and Apple make money? They're huge companies by market cap because they're huge businesses. Google currently has a lower P/E ratio than Pepsi or Coca-Cola.
Amazon is down 44% this year which means it didn't matter how many ways it was earning money.

So what?

Amazon has returned like 32% annually last time I checked, since becoming a publicly traded company in 1997. And if you invested in Walmart the same month that Amazon ipo'd you'd average a 9.25% annual return which is better than VFINX(Vanguard 500 Index Investor) at 6.1%. Walmart IPO'd in 1970 and even investing 27 years later you would have beat the S&P500. So we don't know if Amazon will continue to outperform or not.
Last edited by GP813 on Tue Nov 22, 2022 2:25 pm, edited 2 times in total.
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Re: VTI, S&P500 still so top heavy

Post by exodusNH »

the_wiki wrote: Tue Nov 22, 2022 2:03 pm
exodusNH wrote: Tue Nov 22, 2022 1:49 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
This is always how it's been. A few large companies dominate the market. There's a video floating around in YouTube that shows how it's changed over the years.
Interesting little blog post that may prove your point:

https://www.personalfinanceclub.com/her ... -50-years/

According to that chart, IBM was 8.5% of S&P 500 in 1970s.
And it's a shell of it's former self, yet the long-term return of the S&P 500 has been pretty good.

People like to worry. It served us well on the African plain. Was that movement a zebra or a lion? It doesn't matter -- run! There was no downside to being wrong. It's not so helpful with more abstract concepts, even if it feels the same.

Remember that every headline that claims X or YouTube video telling you to do Y is all about earning the author something. If someone claims enough stuff enough times, they'll be right eventually. And due to our memories or biases, we'll remember that one time that they're right instead of the 300 times they were wrong. Or, the prognostication was so broad or vague that it would have been difficult to be wrong.
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Re: VTI, S&P500 still so top heavy

Post by arcticpineapplecorp. »

the_wiki wrote: Tue Nov 22, 2022 2:03 pm
exodusNH wrote: Tue Nov 22, 2022 1:49 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
This is always how it's been. A few large companies dominate the market. There's a video floating around in YouTube that shows how it's changed over the years.
Interesting little blog post that may prove your point:

https://www.personalfinanceclub.com/her ... -50-years/

According to that chart, IBM was 8.5% of S&P 500 in 1970s.
and things continue to change. in that link to personal finance club above it shows the "most recent" which is from 10/27/2021 as having nvidia, jp moran and facebook in the top 10. Those three aren't in the top 10 of the S&P500 now (source: https://investor.vanguard.com/investmen ... omposition). Looks like they've been replaced with united healthcare, johnson and johnson and exxon mobil (but not in the same spots as those 3 companies that fell out of the top 10).

So 30% of the top 10 companies in the S&P500 have changed in one year's time!

(that being said the stocks in vtsax haven't changed at all over the past 10 years. I looked and can provide proof if interested).
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Re: VTI, S&P500 still so top heavy

Post by the_wiki »

arcticpineapplecorp. wrote: Tue Nov 22, 2022 2:17 pm

(that being said the stocks in vtsax haven't changed at all over the past 10 years. I looked and can provide proof if interested).
Surely TSLA was not in the top 10 holdings for VTSAX in 2012.
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Re: VTI, S&P500 still so top heavy

Post by Tom_T »

How much money have these "top heavy" companies contributed to people's portfolios over the years? Was anyone complaining?
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Re: VTI, S&P500 still so top heavy

Post by burritoLover »

Good thing the top 5 aren't in similar or related industries. That would be really bad. :twisted:
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Re: VTI, S&P500 still so top heavy

Post by Beensabu »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy?
If you don't like it, you can always tilt away from it. Some people do.

Some people don't mind/care.

Some people like it so much, they tilt further into it.

It's up to you.
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Re: VTI, S&P500 still so top heavy

Post by exodusNH »

the_wiki wrote: Tue Nov 22, 2022 2:19 pm
arcticpineapplecorp. wrote: Tue Nov 22, 2022 2:17 pm

(that being said the stocks in vtsax haven't changed at all over the past 10 years. I looked and can provide proof if interested).
Surely TSLA was not in the top 10 holdings for VTSAX in 2012.
That's not what arcticpineapplecorp was claiming. If they were public at that point, the amount that represented their market cap was likely in the total market index. (I can be difficult to get all microcap stocks represented since there simply might not be enough shares for sale.)
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Re: VTI, S&P500 still so top heavy

Post by the_wiki »

Tom_T wrote: Tue Nov 22, 2022 2:22 pm How much money have these "top heavy" companies contributed to people's portfolios over the years? Was anyone complaining?
About the same as balanced equal weight S&P500 funds have. Nobody was complaining in either case.
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Re: VTI, S&P500 still so top heavy

Post by rkhusky »

Focus on the underlying technologies, subsidiaries, market share, brands, and products, rather than the stock symbol, and you will feel more diversified.
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Re: VTI, S&P500 still so top heavy

Post by nisiprius »

"Top-heavy" is a tendentious way to put it.

It's only "top-heavy" if you believe that the natural condition of the stock market is for investors to put the same number of dollars into Exxon/Mobil and Fresh Vine Wine.

Or that the natural condition of a free market is for all companies to be the same size.

Or that the natural condition of the English language is to use equal percentages of all 26 letters.

Or that the natural way to divide up a nation is to give each state the same land area.

Or that the natural composition of seawater is 50/50 water/salt, instead of 96.5/3.5.

Take the time to watch this YouTube video from beginning to end:

Top 10 Largest Companies by Market Cap (1979-2021)

They've had to change the acronym from FANG to FAANG to MAMAA in less than ten years, because the leaders keep changing. MAMAA was only coined in 2021, but already, one of the M's, Meta, isn't even in the top twenty-five. Netflix, the N in FANG and FAANG, isn't even in the top 50.
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Re: VTI, S&P500 still so top heavy

Post by ExcireFoto »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
Have you considered using RSP rather than VTI? Yes, the expense ratio is much higher at 20 basis points, yet it is right there when it comes to return.

If social responsible investing is a consideration, check out ESGV. However, those large-cap companies also dominate ESGV.

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Re: VTI, S&P500 still so top heavy

Post by nisiprius »

Mostly-serious question (for those who think that because beetles constitute 25% of all animals species, life on earth is top-heavy in beetles and undiversified).

The top ten holdings of VTI are:

6.04% (AAPL) Apple Inc.
4.46% (MSFT) Microsoft Corp.
2.29% (AMZN) Amazon.com Inc.
1.56% (TSLA) Tesla Inc.
1.46% (GOOGL) Alphabet Inc.
1.34% (UNH) UnitedHealth Group Inc.
1.28% (GOOG) Alphabet Inc.
1.28% (BRK.B) Berkshire Hathaway Inc.
1.19% (XOM) Exxon Mobil Corp.
1.18% (JNJ) Johnson & Johnson

22.08% total

If Google had only one share class, then you would have 22.08% of the fund's dollars invested in only nine stocks, instead of ten, while the ten would include 23.90% instead of only 22.08%.

If Google had only one share class, would VTI be more top-heavy than it is now?

If Google had only one share class, would VTI be less diversified than it is now?
Last edited by nisiprius on Tue Nov 22, 2022 3:59 pm, edited 1 time in total.
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Re: VTI, S&P500 still so top heavy

Post by brad.clarkston »

People want there cake and eat it to.

During the good times VTI is all we need, SCV tilt'ers are crazy.
During the bad times why is VTI so top heavy?

Pick one.
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Re: VTI, S&P500 still so top heavy

Post by junior »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy?
Nobody said you have to invest solely in VTI.
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Re: VTI, S&P500 still so top heavy

Post by Hyperchicken »

How do we rationalize VTI and S&P500 being so top heavy?
There is nothing to rationalize here. The fund does what its prospectus says. For total stock market fund, its prospectus says to follow capitalization-weighed market, and so that is what the fund does. There are other funds, and not all funds are market-cap weighed.

It is like asking, how do we rationalize that red paint is red? It is red because that is what it is. The whole idea of red paint is being red. There are other colors of paint, if you don't want red.
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Re: VTI, S&P500 still so top heavy

Post by Beensabu »

brad.clarkston wrote: Tue Nov 22, 2022 3:59 pm People want there cake and eat it to.
You can have two cakes. It's okay.
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Re: VTI, S&P500 still so top heavy

Post by jbriar »

junior wrote: Tue Nov 22, 2022 4:01 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy?
Nobody said you have to invest solely in VTI.
I thought the motto was VTSAX and chill? VTSAX or VTI or SPY is pretty much tracking US Large Cap, it trounced everything else the last 12 years so that has to continue, there is little chance of a lost decade scenario. Past performance is indicative of future returns that's why 5 star funds always outperform in the future. The financial environment is totally different now but the Fed will save us. There is no consensus on valuing the market so just assume it cannot be valued. Small cap and value are just random categories that provide no benefit in the long run and all international stocks are trash in modern finance. 100% US large cap is always the best option for stocks no matter how high it goes. We aren't in a bear market this is just a gully that has already bottomed, blue skies ahead! :sharebeer
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Re: VTI, S&P500 still so top heavy

Post by Explorer »

the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
When google sneezes the bottom 1000 companies catch pneumonia... there is a good reason why the big boys are big in spite of the haircuts they and the rest of the companies got. The theory of slicing and dicing may work, but is takes a lot of work on the part of the investor. So, VTI and chill.
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Re: VTI, S&P500 still so top heavy

Post by jbriar »

Explorer wrote: Tue Nov 22, 2022 4:38 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
When google sneezes the bottom 1000 companies catch pneumonia... there is a good reason why the big boys are big in spite of the haircuts they and the rest of the companies got. The theory of slicing and dicing may work, but is takes a lot of work on the part of the investor. So, VTI and chill.
Doesn't really take a lot of work, what is so difficult about it?
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Re: VTI, S&P500 still so top heavy

Post by exodusNH »

jbriar wrote: Tue Nov 22, 2022 4:40 pm
Explorer wrote: Tue Nov 22, 2022 4:38 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
When google sneezes the bottom 1000 companies catch pneumonia... there is a good reason why the big boys are big in spite of the haircuts they and the rest of the companies got. The theory of slicing and dicing may work, but is takes a lot of work on the part of the investor. So, VTI and chill.
Doesn't really take a lot of work, what is so difficult about it?
You have to decide on your tilt.

You have to monitor your holdings to keep them at that tilt.

You potentially suffer the tax consequences of the greater turnover of more focused funds and/or rebalancing activity.

You have to be able to maintain your allocation even when (and it's always when, not if) a particular tilt appears to be underperforming.

If you like it, do it. For most people, the VTI or VOO are good enough.
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Re: VTI, S&P500 still so top heavy

Post by nisiprius »

jbriar wrote: Tue Nov 22, 2022 4:27 pmI thought the motto was VTSAX and chill?
Not to my knowledge. The mottoes I know are (the list is John C. Bogle and has evolved over time):
  • Invest you must
  • Time is your friend
  • Impulse is your enemy
  • Basic arithmetic works
  • Stick to simplicity
  • Never forget reversion to the mean
  • Stay the course
I'm not sure where "VTSAX and chill" came from. I think it came into this forum from outside, but I could easily be wrong about that.
Last edited by nisiprius on Tue Nov 22, 2022 4:57 pm, edited 1 time in total.
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Re: VTI, S&P500 still so top heavy

Post by jbriar »

exodusNH wrote: Tue Nov 22, 2022 4:47 pm
jbriar wrote: Tue Nov 22, 2022 4:40 pm
Explorer wrote: Tue Nov 22, 2022 4:38 pm
the_wiki wrote: Tue Nov 22, 2022 1:30 pm How do we rationalize VTI and S&P500 being so top heavy? I get they are market cap, and market cap is what it is, but it in terms of diversification, it kind of stinks, doesn't it? Even with the top 5 holding having a horrible year, it hasn't really moved the needle on how much the mega caps are dominating these funds.

VTI, you have over 17% of the fund locked up in 5 companies. Meanwhile the bottom 2000 don't even add up to 1% combined. All of the bottom 1000 could have a record day and it wouldn't matter if Google had a bad one.

S&P500 is even more top heavy, obviously.

It just feels hard to call yourself diversified when you have so much of your money tied up in just a few companies. And it doesn't feel like diversification just because you add hundreds or thousands of extra companies, when those extra companies only represent a few percent of your portfolio.
When google sneezes the bottom 1000 companies catch pneumonia... there is a good reason why the big boys are big in spite of the haircuts they and the rest of the companies got. The theory of slicing and dicing may work, but is takes a lot of work on the part of the investor. So, VTI and chill.
Doesn't really take a lot of work, what is so difficult about it?
You have to decide on your tilt.

You have to monitor your holdings to keep them at that tilt.

You potentially suffer the tax consequences of the greater turnover of more focused funds and/or rebalancing activity.

You have to be able to maintain your allocation even when (and it's always when, not if) a particular tilt appears to be underperforming.

If you like it, do it. For most people, the VTI or VOO are good enough.
They might change their mind after a lost decade or worse. If you have any allocation to bond funds or international you would still need to manage your "tilt" at least once per year with tax consequences, maintaining allocations. The difference in taxes between a .07% turnover rate and .17% turnover rate is minor in the real world if you are just using index funds.
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Re: VTI, S&P500 still so top heavy

Post by burritoLover »

Even in VT (Vanguard Total World), you have to get down to the 18th stock from the top before you see a non-US company. The US market is definitely top-heavy even when compared to the world and historically. Doesn't mean that requires action on your part but if something universally impacts these mega caps (even worse than what has happened so far this year) and all you own is VTI or VOO, it is going to have a big impact on your equity portion.
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Re: VTI, S&P500 still so top heavy

Post by Marseille07 »

burritoLover wrote: Tue Nov 22, 2022 4:55 pm Even in VT (Vanguard Total World), you have to get down to the 18th stock from the top before you see a non-US company. The US market is definitely top-heavy even when compared to the world and historically. Doesn't mean that requires action on your part but if something universally impacts these mega caps (even worse than what has happened so far this year) and all you own is VTI or VOO, it is going to have a big impact on your equity portion.
I don't follow what you're saying because based on what you wrote, everyone gets hit hard, including the VT holders.

We actually can't conclude that VTI or VOO would do worse than VT because those 18th stock and lower would also go down should something happen to the US market. For instance VT is -20% YTD whereas VTI is -18%. Those non-US companies are aggravating the situation.
Last edited by Marseille07 on Tue Nov 22, 2022 5:22 pm, edited 2 times in total.
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David Jay
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Re: VTI, S&P500 still so top heavy

Post by David Jay »

the_wiki wrote: Tue Nov 22, 2022 1:30 pmHow do we rationalize VTI and S&P500 being so top heavy?
Because that is the composition of the market.

If you choose to deviate from the market, do so.
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Re: VTI, S&P500 still so top heavy

Post by billaster »

nisiprius wrote: Tue Nov 22, 2022 3:56 pm Mostly-serious question (for those who think that because beetles constitute 25% of all animals species, life on earth is top-heavy in beetles and undiversified).

The top ten holdings of VTI are:

6.04% (AAPL) Apple Inc.
4.46% (MSFT) Microsoft Corp.
2.29% (AMZN) Amazon.com Inc.
1.56% (TSLA) Tesla Inc.
1.46% (GOOGL) Alphabet Inc.
1.34% (UNH) UnitedHealth Group Inc.
1.28% (GOOG) Alphabet Inc.
1.28% (BRK.B) Berkshire Hathaway Inc.
1.19% (XOM) Exxon Mobil Corp.
1.18% (JNJ) Johnson & Johnson

22.08% total

If Google had only one share class, then you would have 22.08% of the fund's dollars invested in only nine stocks, instead of ten, while the ten would include 23.90% instead of only 22.08%.

If Google had only one share class, would VTI be more top-heavy than it is now?

If Google had only one share class, would VTI be less diversified than it is now?
Those rankings are a bit out of date. Ole Elon has dragged Tesla down 6 places to the number 10 spot.

As of yesterday:

6.72 Apple Inc.
5.43 Microsoft Corporation
2.46 Amazon.com Inc.
1.72 Alphabet Inc. Class A
1.69 Berkshire Hathaway Inc. Class B
1.54 Alphabet Inc. Class C
1.45 UnitedHealth Group Incorporated
1.39 Johnson & Johnson
1.39 Exxon Mobil Corporation
1.34 Tesla Inc
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Re: VTI, S&P500 still so top heavy

Post by Brianmcg321 »

I want more of my money invested in the companies that make the most money. So they are perfect for me.
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Re: VTI, S&P500 still so top heavy

Post by the_wiki »

Brianmcg321 wrote: Tue Nov 22, 2022 5:12 pm I want more of my money invested in the companies that make the most money. So they are perfect for me.
I'm not sure that always applies. You don't have to have high profits to have a high market cap. TSLA is a prime example.
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Re: VTI, S&P500 still so top heavy

Post by jbriar »

Brianmcg321 wrote: Tue Nov 22, 2022 5:12 pm I want more of my money invested in the companies that make the most money. So they are perfect for me.
Marketcap equals price times outstanding shares...not which companies have the highest profits......that said, indexing by only company profit dollar totals might be interesting to evaluate.
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Re: VTI, S&P500 still so top heavy

Post by the_wiki »

Hyperchicken wrote: Tue Nov 22, 2022 4:16 pm
How do we rationalize VTI and S&P500 being so top heavy?
There is nothing to rationalize here. The fund does what its prospectus says. For total stock market fund, its prospectus says to follow capitalization-weighed market, and so that is what the fund does. There are other funds, and not all funds are market-cap weighed.

It is like asking, how do we rationalize that red paint is red? It is red because that is what it is. The whole idea of red paint is being red. There are other colors of paint, if you don't want red.
I guess I was asking how do we rationalize VTI as our core holding when it is so top heavy?
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Re: VTI, S&P500 still so top heavy

Post by burritoLover »

Marseille07 wrote: Tue Nov 22, 2022 4:59 pm
burritoLover wrote: Tue Nov 22, 2022 4:55 pm Even in VT (Vanguard Total World), you have to get down to the 18th stock from the top before you see a non-US company. The US market is definitely top-heavy even when compared to the world and historically. Doesn't mean that requires action on your part but if something universally impacts these mega caps (even worse than what has happened so far this year) and all you own is VTI or VOO, it is going to have a big impact on your equity portion.
I don't follow what you're saying because based on what you wrote, everyone gets hit hard, including the VT holders.

We actually can't conclude that VTI or VOO would do worse than VT because those 18th stock and lower would also go down should something happen to the US market. For instance VT is -20% YTD whereas VTI is -18%. Those non-US companies are aggravating the situation.
Oh, you can't conclude VTI/VOO would do worse because the 18th and lower non-US stocks would automatically "go down" should something happen that specifically impacted the tech-heavy mega caps in the US. lol. VT has less exposure to these US mega caps.
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Re: VTI, S&P500 still so top heavy

Post by Marseille07 »

burritoLover wrote: Tue Nov 22, 2022 5:28 pm Oh, you can't conclude VTI/VOO would do worse because the 18th and lower non-US stocks would automatically "go down" should something happen that specifically impacted the tech-heavy mega caps in the US. lol. VT has less exposure to these US mega caps.
I already showed you the YTD data when VTI is down 18% YTD.

I didn't say VT has the same exposure. What I'm saying is that the rest of VT might not outperform US mega caps. At least you can't conclude that they do, as I originally phrased.
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Re: VTI, S&P500 still so top heavy

Post by Charles Joseph »

Marseille07 wrote: Tue Nov 22, 2022 5:35 pm
burritoLover wrote: Tue Nov 22, 2022 5:28 pm Oh, you can't conclude VTI/VOO would do worse because the 18th and lower non-US stocks would automatically "go down" should something happen that specifically impacted the tech-heavy mega caps in the US. lol. VT has less exposure to these US mega caps.
I already showed you the YTD data when VTI is down 18% YTD.

I didn't say VT has the same exposure. What I'm saying is that the rest of VT might not outperform US mega caps. At least you can't conclude that they do, as I originally phrased.
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Re: VTI, S&P500 still so top heavy

Post by exodusNH »

the_wiki wrote: Tue Nov 22, 2022 5:25 pm
Hyperchicken wrote: Tue Nov 22, 2022 4:16 pm
How do we rationalize VTI and S&P500 being so top heavy?
There is nothing to rationalize here. The fund does what its prospectus says. For total stock market fund, its prospectus says to follow capitalization-weighed market, and so that is what the fund does. There are other funds, and not all funds are market-cap weighed.

It is like asking, how do we rationalize that red paint is red? It is red because that is what it is. The whole idea of red paint is being red. There are other colors of paint, if you don't want red.
I guess I was asking how do we rationalize VTI as our core holding when it is so top heavy?
Top-heavy according to whom?

As you've seen, it's ALWAYS top-heavy. Even with that, you would have done really well overall.

VTI and the like are the only way to get the market return. You have to tilt away from it to get different results, which could be better or worse. Tilting gets many people in trouble because they wind up performance chasing, which kills returns. Or they get frustrated, sell everything, and sit on cash, waiting for the right signal to get back in.
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Re: VTI, S&P500 still so top heavy

Post by SimpleGift »

The views of John Bogle on the subject, with the perspective of many decades of history:
John Bogle in 2003 wrote:It’s easy to argue, of course that having, as the S&P 500 Index currently does, 24% of assets in its 10 largest stocks is inadequate diversification. But the reality is that that level of concentration is in fact also below historic norms. In 1950, for example, the largest ten stocks composed fully 51%(!) of the total value of the Index, and even in 1964 the top ten composed 38%. Is such diversification adequate?

There’s no way to be certain. But if the actual goal of investing is to capture as close as possible to 100% of the return of the stock market, one simply tries to own the market itself, warts and all, with each company weighted by its own market capitalization.
Last edited by SimpleGift on Tue Nov 22, 2022 5:52 pm, edited 1 time in total.
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Re: VTI, S&P500 still so top heavy

Post by rkhusky »

jbriar wrote: Tue Nov 22, 2022 5:23 pm
Brianmcg321 wrote: Tue Nov 22, 2022 5:12 pm I want more of my money invested in the companies that make the most money. So they are perfect for me.
Marketcap equals price times outstanding shares...not which companies have the highest profits......that said, indexing by only company profit dollar totals might be interesting to evaluate.
Would you invest in the companies that made the most last year? Or try to figure out which companies will make the most over the next 20 years?
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Re: VTI, S&P500 still so top heavy

Post by David Jay »

the_wiki wrote: Tue Nov 22, 2022 5:25 pmI guess I was asking how do we rationalize VTI as our core holding when it is so top heavy?
You keep using the word "rationalize".

I sense that you want to believe that the market is somehow wrong in valuing companies and you can determine better than the market how to invest. That's fine (I am a recovering stock picker myself, so I know the instinct), but understand that this is what you are saying when you say you want to rationalize the market.
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Re: VTI, S&P500 still so top heavy

Post by arcticpineapplecorp. »

the_wiki wrote: Tue Nov 22, 2022 2:19 pm
arcticpineapplecorp. wrote: Tue Nov 22, 2022 2:17 pm

(that being said the stocks in vtsax haven't changed at all over the past 10 years. I looked and can provide proof if interested).
Surely TSLA was not in the top 10 holdings for VTSAX in 2012.
i think you're right. i could've sworn i saw this first image was for the top 10 holdings of vtsax in 2012 (but for the life of me can't find where I found this) and now am thinking it was really current, like 2022:

Image

because it matches the 2022 top 10 holdings:

Image

only thing I could find was an article for 2012 showing these as the top 10 holdings for vtsax (so there are some differences here too in vtsax just like s&p500 over the 10 years!):

Amount Holding
5.07% Microsoft Corp
4.67% Apple Inc
3.84% Amazon.com Inc
1.79% Facebook Inc A
1.39% Alphabet Inc A
1.33% Alphabet Inc Class C
1.22% Johnson & Johnson
1.08% Berkshire Hathaway Inc Class B
1.06% Visa Inc Class A
0.97% Procter & Gamble Co

source: https://minafi.com/fund/compare/vtsax-vs-vttsx
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