But if you are feeling uncertain about the market — the trade standoff, Brexit, the health of the European Union, the threat of a recession and years of unprecedented stimulus by central banks — it may be time for you to diversify or consider a value-oriented strategy.
Cap-weighted vs. equal-weighted Most coverage of the broad U.S. stock market centers on the S&P 500 Index SPX, -0.07%, which has performed well, aside from some short declines, since the post-financial-crisis bottom on March 9, 2009. This explains the incredible shift in assets into index funds and away from actively managed funds. But the S&P 500 is weighted by market capitalization, which means it is not really as diversified as you might expect it to be.
You can reduce your risk when investing in the entire S&P 500 by going with an equal-weighted index fund, such as the Invesco S&P 500 Equal Weight ETF RSP, +0.02%. With several rapidly growing tech companies dominating the S&P 500, it’s reasonable to expect historical performance of the equal-weighted ETF to trail the cap-weighted index and SPY, but it’s worth taking a second look:
FTSE Russell divides the Russell 1000 into two overlapping groups: The Russell 1000 Value Index RLV, +0.12% which includes 760 companies in the Russell 1000 that have lower price-to-book ratios and lower expected growth rates, while companies with a combination of lower composite value score and higher expected growth rates are included in the Russell 1000 Growth Index RLG, -0.32%, which has 526 companies. There are 288 companies that are in both the value and growth indexes.
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