Owning a mutual fund or ETF tracking the S&P 500 provides broad diversification, right?  After all you’d own 500 stocks.

The fallacy is a function of not understanding how a cap-weighted index functions – namely the largest stocks have an outsized impact on returns.  This works in both up and down markets.

As of Tuesday the S&P is down roughly 13.7% YTD.  Which stocks are the contributors?

Microsoft – 1.21%

Apple – 1.15%

Amazon – 1.14%

Alphabet (Google) – 0.79%

Meta (Facebook) – 0.74%

Tesla – 0.68%

Nvidia – 0.67%

Netflix – 0.44%

492 OTHER STOCKS – 6.92%

Total – 13.74%