You recently looked at your very diversified portfolio and compared it to the return of the S&P 500 (SPY), and to your shock, you are underperforming the market. You start to wonder how that can be. You own quality companies and have held their own in 2020 if not even produced a nice return. You also own an excellent mixture of industries, whether it's through individual stock holdings or Exchange Traded Funds.
You are well diversified and have produced a good return over the years and stayed within the S&P 500. But now, all of a sudden, the market is bouncing your performance. Well, shockingly, this may not be because your portfolio isn't good. You haven't been diligent enough following along with your holding's performance and business strategies in the future.
It very well likely has nothing to do with something you may have or have not done. It is likely, the way the S&P 500 is structured and how your portfolio isn't structured.
The S&P 500 is structured by market capitalization. That means the largest companies from a market capitalization standpoint, in the S&P 500 carry more weight in the portfolio than companies that are smaller in terms of market capitalization.
For example, Apple (AAPL) is the largest company in the S&P 500, with a market capitalization of $2.13 trillion and has a 7.06% weighting in the S&P 500. The smallest company in the S&P 500 is Coty Inc. (COTY), which has a market capitalization of $2.83 billion and a weighting of 0.003679% in the S&P 500 index. Continue reading "This Is Why You Are Losing To The S&P 500"
