Redacted

[Weathering]

Redacted

[adave]

25% is not a big deal. These are some of the best businesses ever created.

How long will they dominate? Anyone's guess but they have near monopoly positions in their tech arenas.

[rkhusky]

The companies themselves are well diversified.

[sycamore]

This is a recurring story that comes and goes for the past few decades. I don't make investment decisions on the relative size of the top 10 stocks.

Here are previous BH discussions about how concerning (or not) the situation is:
- viewtopic.php?t=400859

- viewtopic.php?t=390879

[neurosphere]

The headline is a little provocative, I will admit. However, is it true that five stocks now constitute 25% of the S&P500? Meaning if all five of these stocks went down 1% while the rest of the index stayed the same, the index would go down 0.25%. If so, that is a large influence on an index that is supposed to be broadly diversified.

https://finance.yahoo.com/news/apple-mi ... 39569.html
"Apple, Microsoft, and 3 other stocks are now worth nearly $9 trillion – or almost 25% of the S&P 500"

Homework: How does this compare historically? What percentage of the SP500 have the top 5 or 10 stocks been in the past?

And follow-up question: What would anyone propose to do about this? That is, maybe this is a GREAT thing for investors? Or is it bad for returns? How bad? For how long?

Perhaps one could pay a professional some money to try to predict whether a non-market weighted portfolio might do better for some specific period of time?

[SimpleGift]

Homework: How does this compare historically? What percentage of the SP500 have the top 5 or 10 stocks been in the past?

It’s not unprecedented for the largest 5 stocks in the S&P 500 to exceed 25% of market cap. It previously exceeded this threshold during the "Nifty 50" era of the 1960s (chart below):

• 
  Source: FDS

The five largest S&P companies by market cap in 1960 were AT&T, General Motors, DuPont, Exxon and General Electric. A fairly diversified collection.

[KlangFool]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

[adave]

If AI turns out to be the real deal, these companies stand to gain even more size and influence. It will be interesting to see what happens. TSLA also in the mix although it has dropped a lot, it has multi-trillion dollar market cap potential.

[PoorHomieQuan]

Not sure why the size of our companies reflects the health of our economy or financial markets?

Would you feel better about the S&P 500 or the economy overall if these 5 companies were each split up into 10 spinoffs, all else being equal?

[rich126]

Not saying you should do this but RSP etf holds equal amounts of all 500 stocks.

[ckangas]

Homework: How does this compare historically? What percentage of the SP500 have the top 5 or 10 stocks been in the past?

It’s not unprecedented for the largest 5 stocks in the S&P 500 to exceed 25% of market cap. It previously exceeded this threshold during the "Nifty 50" era of the 1960s (chart below):

• 
  Source: FDS

The five largest S&P companies by market cap in 1960 were AT&T, General Motors, DuPont, Exxon and General Electric. A fairly diversified collection.

Certainly not a prediction. But that graph doesn't seem to imply that concentration is a good omen.

[AlwaysLearningMore]

The headline is a little provocative, I will admit. However, is it true that five stocks now constitute 25% of the S&P500? Meaning if all five of these stocks went down 1% while the rest of the index stayed the same, the index would go down 0.25%. If so, that is a large influence on an index that is supposed to be broadly diversified.

https://finance.yahoo.com/news/apple-mi ... 39569.html
"Apple, Microsoft, and 3 other stocks are now worth nearly $9 trillion – or almost 25% of the S&P 500"

This article may interest you. "Wealth Creation in the U.S. Public Stock Markets 1926 to 2019"

https://ssrn.com/abstract=3537838

[LFKB]

If those companies lose market share, it will simply accrue to other companies. “Money is always there, but the pockets change.”

[LFKB]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

[SimpleGift]

If we go back further in time, to the 1930s, it becomes apparent that U.S. market dominance by a few large capitalization companies is actually nothing new (charts below).

• 
  
  
  Source of Charts: DFA

Instead of today’s concentration by the big 5 of Apple, Microsoft, Alphabet, Amazon and Nvidia, for over 30 years between 1930 and 1960, the U.S. market was dominated by the 5 companies of AT&T, General Motors, DuPont, Exxon and General Electric. So what seems to be a new phenomenon is actually an old one.

[Northern Flicker]

The headline is a little provocative, I will admit. However, is it true that five stocks now constitute 25% of the S&P500? Meaning if all five of these stocks went down 1% while the rest of the index stayed the same, the index would go down 0.25%. If so, that is a large influence on an index that is supposed to be broadly diversified.

https://finance.yahoo.com/news/apple-mi ... 39569.html
"Apple, Microsoft, and 3 other stocks are now worth nearly $9 trillion – or almost 25% of the S&P 500"

Two points: a) it is only about 20%; and b) so what? There are more diversified indices.

[Ocean77]

Homework: How does this compare historically? What percentage of the SP500 have the top 5 or 10 stocks been in the past?

It’s not unprecedented for the largest 5 stocks in the S&P 500 to exceed 25% of market cap. It previously exceeded this threshold during the "Nifty 50" era of the 1960s (chart below):

• 
  Source: FDS

The five largest S&P companies by market cap in 1960 were AT&T, General Motors, DuPont, Exxon and General Electric. A fairly diversified collection.

That looks scary! Those high points in the 70s and in 2000 were followed by rather disastrous times.

[sc9182]

That looks scary! Those high points in the 70s and in 2000 were followed by rather disastrous times.

Why not pick top-2, these two are prolly even more concentrated than top-5 metric.

Correlation does not (necessarily) imply causation.

[will86]

how often has the top 25% of the index had a PE ratio significabtly higher than the next lower 25? (or the remaining 75%)

[Johm221122]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

It's all large cap US stocks, remember the lost decade. It's not a good investment for 100% of your portfolio for many people.

[NYCwriter]

There's been hand-wringing about narrow breadth in the SP, but consider that Apple as "most valuable company" has long been eyeballed as pulling the SP up or dragging it down. Over the last 12 months it delivered 35%, and those 5 companies have boosted the SP to 9%+ YTD. The tech spurt is supposedly connected to excitement over AI. And...

Isn't the solution is the same as it's ever been? Assess risk and rebalance if necessary.

Northern Flicker and LFKB are right, the market has often been dominated by a select group and one that changes over time, as other companies gain market share. Consider the example of IBM--the single largest component in the SP500 in the 1980s. We now have 2-3 companies carrying the weight that IBM did in the index.

[anoop]

Not saying you should do this but RSP etf holds equal amounts of all 500 stocks.

Why would one want to own a zombie company in the same weight as the top ones? Do they rebalance daily?

[unwitting_gulag]

The concern is that when market capitalization of a few superstars within the S&P 500 becomes "too high", this is potential harbinger of overall decline in the index. The implication is that the big companies became very big, while other members of the index... didn't get so big. Or in other words, the big guys grew more. Among the less-big companies, there may have already been a stealth bear market.

Looking at other indices, such as midcap or smallcap, we see this phenomenon amplified. Just as the bottom-495 of the S&P 500 lag the top-5, so too, do the smallcap and midcap lag the S&P 500. This means that our attempt to diversify is a penalty on performance. If eventually there's a turnaround, fine, such is (supposedly) our reward for diversification. But if year after year, the smaller-cap indices lag the larger, and within the larger-cap index, the majority of stocks lag the largest stocks, this this narrow leadership is both frustrating to the index-investor, and a cause for worry, about bad-times ahead.

Another factor is the durability of market-capitalization leadership. If a big company founders and falls, while a moderately-big one burgeons and overtakes it, not only are we rewarded for the practice of indexing, but this churning builds confidence, that markets are healthy. But if the leadership does not rotates, and the same giants stay on top, year after year after dogged year, such lopsided dominance is again cause for worry.

[KlangFool]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

Good luck to you if you believe that is diversification.

KlangFool

[KlangFool]

Folks,

If everything that you owned is doing well, you have no diversification.

KlangFool

[Tom_T]

Folks,

If everything that you owned is doing well, you have no diversification.

KlangFool

That's not true.

[seltzer]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

What percent of the revenue of international firms comes from the US?

If it is 30% or more, would you consider an investor as not needing to invest in US stocks because they're getting sufficient revenue from US-based sources?

[Tom_T]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

What percent of the revenue of international firms comes from the US?

If it is 30% or more, would you consider an investor as not needing to invest in US stocks because they're getting sufficient revenue from US-based sources?

OMG, please do not turn this into another "international" thread. PLEASE.

[rich126]

Not saying you should do this but RSP etf holds equal amounts of all 500 stocks.

Why would one want to own a zombie company in the same weight as the top ones? Do they rebalance daily?

Zombie Company? Huh? The SP500 is 500 of the largest companies around. As of 2021 "a company had to have at least $13.1 billion of market cap to be in the SP500. Are there lesser companies in the SP500, yeah but zombie? No idea where you are at but it strikes me as a completely uniformed knee jerk comment.

[CyclingDuo]

Homework: How does this compare historically? What percentage of the SP500 have the top 5 or 10 stocks been in the past?

It’s not unprecedented for the largest 5 stocks in the S&P 500 to exceed 25% of market cap. It previously exceeded this threshold during the "Nifty 50" era of the 1960s (chart below):

• 
  Source: FDS

The five largest S&P companies by market cap in 1960 were AT&T, General Motors, DuPont, Exxon and General Electric. A fairly diversified collection.

Why confine it to the S&P 500, how about the largest companies in the world since 2000...


See animation here: https://www.visualcapitalist.com/cp/lar ... 0-to-2022/


S&P 500 largest stocks...


See animation here: https://youtu.be/kfMFDcuDKYA

[KlangFool]

Folks,

If everything that you owned is doing well, you have no diversification.

KlangFool

That's not true.

Good luck!

KlangFool

[InvestorDave]

Folks,

If everything that you owned is doing well, you have no diversification.

KlangFool

If that’s true, then “if everything that you owned is doing bad, you have no diversification” should be a true statement as well. If that is true, then anyone invested in only stocks and bonds in 2022 wasn’t diversified.

[seltzer]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

What percent of the revenue of international firms comes from the US?

If it is 30% or more, would you consider an investor as not needing to invest in US stocks because they're getting sufficient revenue from US-based sources?

OMG, please do not turn this into another "international" thread. PLEASE.

It's incredibly relevant to the thread topic because a "Global Market Cap Weight" investor holds these companies at half the equity weight of an S&P 500 investor.

S&P 500 (VOO): 7.20% AAPL

Vanguard Total World Stock (VT): 3.60% AAPL

[Tom_T]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

What percent of the revenue of international firms comes from the US?

If it is 30% or more, would you consider an investor as not needing to invest in US stocks because they're getting sufficient revenue from US-based sources?

OMG, please do not turn this into another "international" thread. PLEASE.

It's incredibly relevant to the thread topic because a "Global Market Cap Weight" investor holds these companies at half the equity weight of an S&P 500 investor.

S&P 500 (VOO): 7.20% AAPL

Vanguard Total World Stock (VT): 3.60% AAPL

The OP expressed concern about the S&P 500 being top-heavy. If you want an international discussion, the weekly endless debate can be found here. viewtopic.php?t=403225

[sperry8]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

That's not true. The S&P500 is quite diversified (although less so than a few years ago). But still a worthy diversified option for a 1 fund portfolio.

[KlangFool]

Folks,

If everything that you owned is doing well, you have no diversification.

KlangFool

If that’s true, then “if everything that you owned is doing bad, you have no diversification” should be a true statement as well. If that is true, then anyone invested in only stocks and bonds in 2022 wasn’t diversified.

That logic does not work. Diversification does not work that way.

KlangFool

[seltzer]

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

What percent of the revenue of international firms comes from the US?

If it is 30% or more, would you consider an investor as not needing to invest in US stocks because they're getting sufficient revenue from US-based sources?

OMG, please do not turn this into another "international" thread. PLEASE.

It's incredibly relevant to the thread topic because a "Global Market Cap Weight" investor holds these companies at half the equity weight of an S&P 500 investor.

S&P 500 (VOO): 7.20% AAPL

Vanguard Total World Stock (VT): 3.60% AAPL

The OP expressed concern about the S&P 500 being top-heavy. If you want an international discussion, the weekly endless debate can be found here. viewtopic.php?t=403225

And my comment provided actionable advice if, after discussion, the OP decides that having a less top-heavy portfolio is in their best interests, OP can invest in Total World instead of S&P 500 to reduce the weight of the top 5 holdings by 50%.

[Unnecessary comment removed by moderator oldcomputerguy]

[KlangFool]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

That's not true. The S&P500 is quite diversified (although less so than a few years ago). But still a worthy diversified option for a 1 fund portfolio.

Good luck to you! I had been through Telecom Bust.....

KlangFool

[wolf359]

That looks scary! Those high points in the 70s and in 2000 were followed by rather disastrous times.

Why not pick top-2, these two are prolly even more concentrated than top-5 metric.

Correlation does not (necessarily) imply causation.

The whole decade of the 1970's were terrible markets. Perhaps when bad economic events occur, concentration results as the strong players absorb the weak ones? In other words, you're seeing the effect, rather than the cause. The spikes ARE in the 1970's, 1999, 2008, and 2020.

[sperry8]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

That's not true. The S&P500 is quite diversified (although less so than a few years ago). But still a worthy diversified option for a 1 fund portfolio.

Good luck to you! I had been through Telecom Bust.....

KlangFool

Over the past 20 years, it's held up pretty well against a more broadly diversified portfolio (Diversified Portfolio is represented by 25% S&P 500 Index,
19% Russell Mid Cap Index, 7% MSCI EAFE Index, 5% Russell 2000 Index, 4% FTSE Emerging Stock Index, 25% Bloomberg U.S. Aggregate Bond Index, and 15% Bloomberg U.S. Corporate High Yield Index.)

https://www.blackrock.com/us/individual ... -va-us.pdf

[RubyTuesday]

I am less worried about the impact to my investments from consolidation and concentration within an index, than I am about the impact of consolidation on my budget. Consolidation in general creates pricing power for companies, hurting my expense budget while potentially pumping up my asset values…

[LFKB]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

What percent of the revenue of international firms comes from the US?

If it is 30% or more, would you consider an investor as not needing to invest in US stocks because they're getting sufficient revenue from US-based sources?

No, but we have all the best companies in the world. Go look at the top companies in the international indexes - they’re not nearly as impressive as what we have here. I don’t consider going down in quality a necessary way to diversify. There’s nothing wrong with it either, but I don’t see why it’s 100% needed. Warren Buffett would agree.

[LFKB]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

Good luck to you if you believe that is diversification.

KlangFool

Sounds like you have underperformed the S&P but hey, at least you’re diversified!

[LFKB]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

It's all large cap US stocks, remember the lost decade. It's not a good investment for 100% of your portfolio for many people.

History says it is, but I don’t begrudge anyone that does otherwise. What did international and small cap US do in the lost decade?

Btw, I am referencing it as being well diversified for your stock allocation - not your entire portfolio.

[Taylor Larimore]

The headline is a little provocative, I will admit. However, is it true that five stocks now constitute 25% of the S&P500? Meaning if all five of these stocks went down 1% while the rest of the index stayed the same, the index would go down 0.25%. If so, that is a large influence on an index that is supposed to be broadly diversified.

Bogleheads:

I am pleased that my portfolio is over-weighted in the largest and most successful companies in the United States.

Best wishes.
Taylor

Jack Bogle's Words of WIsdom: "Don't look for the needle in the haystack; just buy the haystack."

[20cm]

Btw, I am referencing it as being well diversified for your stock allocation - not your entire portfolio.

This is a key point. VTI is something like an 85% SPY. If VTI is considered well diversified then SPY is good enough.

[Johm221122]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

It's all large cap US stocks, remember the lost decade. It's not a good investment for 100% of your portfolio for many people.

History says it is, but I don’t begrudge anyone that does otherwise. What did international and small cap US do in the lost decade?

Btw, I am referencing it as being well diversified for your stock allocation - not your entire portfolio.

If you add fixed income then you are diversified and not 100% S&P 500

If you diversified with international, small cap and fixed income the decade wasn't a lost decade.

The lost decade could have been worse (think Japan)

[KlangFool]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

That's not true. The S&P500 is quite diversified (although less so than a few years ago). But still a worthy diversified option for a 1 fund portfolio.

Good luck to you! I had been through Telecom Bust.....

KlangFool

Over the past 20 years, it's held up pretty well against a more broadly diversified portfolio (Diversified Portfolio is represented by 25% S&P 500 Index,
19% Russell Mid Cap Index, 7% MSCI EAFE Index, 5% Russell 2000 Index, 4% FTSE Emerging Stock Index, 25% Bloomberg U.S. Aggregate Bond Index, and 15% Bloomberg U.S. Corporate High Yield Index.)

https://www.blackrock.com/us/individual ... -va-us.pdf

And, over the last 20 years, I have been unemployed for more than 1 year a few times....

If you are a lucky person that can guarantee that you will not be unemployed in the coming recession over the next 20 years, more power to you.

KlangFool

[KlangFool]

OP,

A) Unless you are 100% S&P 500, why should this bother you?

B) If you are 100% S&P 500, you have a problem. You are not diversified.

KlangFool

100% S&P 500 is extremely diversified by sector and even by geography, with about 30% of their revenue coming from abroad

Good luck to you if you believe that is diversification.

KlangFool

Sounds like you have underperformed the S&P but hey, at least you’re diversified!

LFKB,

And, someone can always outperform XYZ asset class at certain time period. That is normal. It is just an indication that the person is not diversified.

KlangFool

[HomerJ]

Owning the other 495 companies means even WHEN (not if) the top 5 drop back someday (like all other past top 5), we will still own the NEW top 5, and all the gains they got going from #474 and #423 and #397, etc, up to #1 and #2 and #3