1 Thing Every Investor Needs to Know About Buying the S&P 500 Right Now
Key Points
The S&P 500 index fund is market-cap weighted, with the biggest companies most heavily represented.
One exchange-traded fund offers the same 500 companies in roughly equal measure.
Investing in the S&P 500 (SNPINDEX: ^GSPC) is popular, especially through exchange-traded funds (ETFs) like the Vanguard S&P 500 ETF (NYSEMKT: VOO). But it includes some tradeoffs.
The S&P 500 index is made up of the 500 biggest companies in America. Together, they account for about 80% of the U.S. stock market's value. Invest in the S&P 500, and you become a part owner of 500 large businesses, instantly diversifying your portfolio.
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Better still, the S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods.
So, what's the tradeoff?
While you might be a part-owner of 500 companies, you'll own very, very little of most of them, because the index is quite concentrated and top-heavy. Here are the top 10 holdings of the Vanguard S&P 500 ETF and their share of the index:
Stock |
Weighting |
|---|---|
1. Nvidia |
7.50% |
2. Apple |
6.58% |
3. Microsoft |
4.29% |
4. Amazon.com |
3.61% |
5. Alphabet Class A |
3.24% |
6. Broadcom |
2.77% |
7. Alphabet Class C |
2.58% |
8. Micron Technology |
2.01% |
9. Meta Platforms |
1.91% |
10. Tesla |
1.83% |
Source: Morningstar.com, as of June 30, 2026.
Since the index is market-capitalization-weighted, the biggest companies are weighted the most, wielding the most influence. These nine companies (Alphabet appears twice on the list) recently accounted for more than a third of the entire index! Indeed, the top three alone made up 18%. So if you buy into this exchange-traded fund, you'll be mostly invested in a bunch of huge tech companies.
Nike and PayPal are in the index, too, but each was recently weighted at less than 0.1%. Lululemon Athletica and Hasbro were only at 0.02%. If you're not loving this concentration, check out the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP). It's also an S&P 500 index fund, but one that weights each of the 500 companies equally and rebalances quarterly.
Don't think that it's too late to invest in the S&P 500, either. It does seem more overvalued than undervalued, but investing in it can still work out well.
Selena Maranjian has positions in Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Micron Technology, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Micron Technology, Microsoft, Nike, Nvidia, PayPal, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Hasbro and Lululemon Athletica Inc. and recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.