The good ol’ S&P 500.  An index comprised of the 500 largest U.S. stocks as measured by market capitalization.

We know it.  We love it.  It’s everywhere.  It’s easy to understand.  We can buy funds and ETFs that track it.

Let’s take a moment to give the S&P 500 a big hug.  We love you S&P 500.  Thanks for being a part of our lives.

And now to the underbelly.

Because the S&P 500 is a cap-weighted index the larger companies represent a larger portion of index performance.  Apple (3.91%), Microsoft (3.10%), Amazon (2.70%) and Facebook (1.87%) combine to represent roughly 12% of index performance.

That’s right.  Just four stocks – all in the same industry we might add – drive close to 12% of the index performance.

So much for the diversification of 500 stocks.

And our friends across the pond?  They’re worse off.

The FTSE 100 – an index comprised of the 100 largest stocks as measured by market capitalization listed on the London Stock Exchange – lists four stocks that drive almost 23% of performance.  That’s HSBC (7.73%), British-American Tobacco (5.28%), British Petroleum (4.92% and Royal Dutch Shell (4.68%) explaining almost a quarter of market movement.  4% of the stocks provide almost 25% of the performance.

So much for the diversification of 100 stocks.