Many investors are heavily invested in the S&P 500. The S&P 500 is an index that tracks the 500 largest publicly traded companies in the U.S. A lot of investors may mistakenly think, “I own 500 stocks so I’ve got plenty of diversification.” What investors may not realize is that the S&P 500 is a “market cap weighted” index – this means that the index gives MORE weight to the biggest companies. For example, Apple is the largest company in the U.S. and comprises about 7% of the S&P 500.

This year, a small group of the largest 7 stocks (nicknamed the “Magnificent 7”) have surged in value. As they have surged in value, the Magnificent 7 comprise a bigger and bigger share of the S&P 500. Today, if an investor puts $100 into a S&P 500 index fund, approx. $30 will go into purchasing just these seven stocks!

For investors that don’t want their fortunes to ride on just a handful of stocks, there are thousands of other stocks to consider including in your portfolio. Many of these others stocks (those that are not the Magnificent 7) may also trade at lower relative prices (ie they have a lower price/book value ratio).

Let us know if you have questions about investing or your portfolio!

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