The biggest U.S. stocks have done great for you. Experts say not to get greedy
Low-cost S&P 500 index funds are the foundation of many portfolios to grow wealth, but investors should add assets to diversify and lower volatility.
TL;DR
- The S&P 500, heavily weighted towards information technology, presents concentration risks for investors, reminiscent of the dot-com bubble.
- Diversifying with other equity markets, uncorrelated assets, fixed income, international, and small-cap equities can mitigate volatility and opportunity risk.
- Investors should assess their time horizon to determine if their S&P 500 exposure is appropriate for their financial goals.
- Alternative investments like international equity, small-cap equity, dividend-growth ETFs, shorter-term government bonds, and gold offer diversification benefits and potentially better valuations.
- Diversification is considered the only 'free lunch' in investing, reducing volatility without necessarily sacrificing expected returns.