What is the difference between the S&P 500, 495, and 5?

Our point is this, first watching an Index driven by 5 stocks is not a high-quality benchmark even if the media touts the Index. If you own these 5 stocks as your only investment your portfolio would not be considered diverse, nor would you be managing risk very well. Currently, the S&P 500 is (unofficially) the S&P 5. Don’t believe us? The top 5 largest stocks have return +39%, Facebook, Apple, Amazon, Alphabet/Google, Microsoft versus the other 495 are -1% YTD.[1] In the year 2000, we saw a similar dilemma. It is hard to tell what the amount that the top 5 of the S&P drove the market back then. So, let’s pick on Microsoft, who was #1 in ‘99 in the S&P with a market value of $604 B, by the end of 2000 the company’s stock had lost @61.75% to $231 B. In ’99, we could have called it the “S&P 10 vs the S&P 490,” with 10 companies holding @30% of the Index’s value.[2] Now as then, we believe this Index is demonstrating a bubble, specifically another tech bubble similar to 2000. All of the current top 5 companies are in the same industry, the Tech industry. These five stocks make up @24% of the Index.[3]In our opinion, this is a very dangerous phenomenon that occasionally occurs in history, up to this point as always ended badly for those investing these, and we want our clients to avoid.

Why are we not in the S&P 5?

A quick answer for our Faith-Based investing clients is that none of those companies pass the screen for our Biblically responsible index. For those not in that index, it is for a couple of reasons. They have had an extreme amount of volatility since March and our indicators told us to go “risk-off” in February. Another is the excess price for the value of those companies that we have talked about multiple times over the past few months. In our opinion, the same institutions that have helped increase the price will also be the ones to quickly sell-off as it starts to tumble creating a fast descent. You throw all of this together and essentially buying into the “S&P 5” now would be buying high and selling low.

[1] https://www.isabelnet.com/five...

[2] https://rpubs.com/mbadros/sp50...

[3]https://www.investopedia.com/top-10-s-and-p-500-stocks-by-index-weight-4843111


Investment Advisory Services offered through Sound Financial Strategies Group, LLC (SFSG), a Registered Investment Adviser. Certain representatives of SFSG are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC, 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866 (800)637-3211. SFSG and APW Capital are separate and unrelated companies.
The opinions expressed are those of Sound Financial Strategies Group, LLC (“Sound”). The opinions referenced are as of the date of publication and are subject to change without notice. This information is not a recommendation to buy or sell a particular security or to invest in any particular sector. Forward-looking statements are not guaranteed. Sound reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs, and there is no guarantee that its assessment of investments will be accurate. Information was obtained from third-party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. This information is not intended to be investment advice and does not take into account specific client investment objectives. Before investing, an investor should consider his or her investment goals and risk comfort levels and consult with his or her investment adviser and tax professional.
The S&P 500 is a market-value weighted index, with each stock’s weight in the Index proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of US equity performance. It is not possible to invest directly in an index.
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