Media personalities often recommend investing in the S&P 500 Index®. Since the indexes are really a list of stocks, you can only invest in mutual funds or Exchange-Traded Funds (ETFs) like SPY and VOO that own the list of stocks. Index funds are often chosen for their low fees.
Investors may not realize that index funds don’t own equal amounts of the stocks in the index. The ‘500’, for example, is weighted so that the most valuable companies represent the largest percentages of the index. Today, with the acceleration of AI, stock indexes and the corresponding ETFs have become increasingly concentrated in the biggest names. Investors pushed up the price of stocks like Tesla, Meta, Nvidia and Google, to the point where the top 10 stocks made up almost 40% of the index, and therefore the index-tracking ETFs.
The problem comes when these mega-stocks lose favor and drive the index lower, even if the other 490 companies hold their value. Index investors are experiencing this today as the top 10 stocks fell 17% this month. An index investor who needs to access their money can’t sell the stocks holding their value without selling some of the rest as well.
Integras Partners has written about excess valuations several times over the past two years, and we have an answer. Our Dividend Growth Strategy holds strong companies with solid balance sheets, high returns on capital and consistently growing dividends. As investors sell overvalued stocks, they often put their money into these types of companies with more stable growth prospects. So, there is a better solution!
Call us today to learn how we can help. 404-941-2800
