Did you know that most ETF’s and mutual funds that track the S&P 500 do it on a cap-weighted basis? That means you have more exposure to the biggest companies and less to smaller large cap stocks. That might not be the best solution. When I buy an individual stock, I think about buying about $3,000-$6,000 worth of shares. I don’t want any individual stock, with exceptions, to be a larger holding than others that are similar in nature. Most stock mutual funds and stock ETFs don’t work that way. They use a cap-weighted approach. RSP is an exception.
Invesco S&P 500® Equal Weight ETF
ETF RSP is linked to the S&P 500 Index. It has a unique weighting methodology that makes it useful for some investors. RSP is linked to an equal-weighted index. This means the component companies receive approximately equal allocations. That results in exposure that is considerably more balanced than other alternatives such as SPY. For example, if there were 100 companies in the ETF, and you had $100 to invest, you would have $1 invested in each company.
Some investors believe this approach will add value over the long haul, including the founder of the AAII service, James Cloonan. RSP has a rational 0.20% expense ratio. The XTF rating is a very positive 9.6. RSP has about 500 companies and each of them is about the same in total dollars invested. The advantage of this is that no single large investment (like Google, Facebook or Amazon) can exert undue influence on the fund’s results in a negative way. Of course, that also means no single company can goose the fund upward in a dramatic way. See this link for James Cloonan’s book: INVESTING AT LEVEL3