The Vanguard S&P 500 ETF (NYSEMKT: VOO) is one of the most popular investment vehicles in the world.
Including the mutual fund version of the ETF, there is $1.6 trillion in total assets invested in the low-cost Vanguard product
To be clear, there are good reasons why so many investors use the Vanguard S&P 500 ETF as the backbone of their portfolios. The S&P 500 is considered the best indicator of how U.S. large-cap companies are doing, and Vanguard’s version has a rock-bottom 0.03% expense ratio, making it an extremely cost-effective way to get exposure. 1 big problem with the S&P 500 The S&P 500 has produced extraordinary returns over the past decade or so, and the biggest reason why is the stellar performance of the mega-cap tech stocks. But this has also produced what I consider to be the biggest drawback of investing in the S&P 500 — it has become extremely top-heavy.
Nvidia (NASDAQ: NVDA) alone makes up nearly 8% of the benchmark index, and Apple (NASDAQ: AAPL) now accounts for about 6.5%. The 10 largest companies in the S&P 500 now make up 40% of the index. And the 22 largest S&P companies account for as much of the index’s weight as the 478 smallest names in the index.