Making a single investment can give you a diversified portfolio with approximately equal positions in around 500 of the largest American companies. The Dow Jones Transportation Average and the Dow Jones Industrial Average are among the oldest stock market tracking indexes still in use today, highlighting the importance of following market trends for many investors. However, these indexes have limitations as they only track a small number of companies and are sector-specific rather than covering the overall market. Additionally, they are price-weighted indexes, which can be problematic due to factors like stock splits affecting a company’s impact on the index.
Considering these limitations, it may be time to explore alternative options such as the Invesco S&P 500 Equal Weight ETF. This ETF takes a different approach by purchasing an approximately equal stake in each of the roughly 500 stocks in the S&P 500 index. This broad-based market tracker offers diversification by equally weighting its holdings, unlike traditional S&P 500 index tracking ETFs that use market capitalization-based weighting.
By equal-weighting investments, the Invesco S&P 500 Equal Weight ETF reduces reliance on the largest companies in the index, enhancing diversification. While it may not perfectly match the performance of the S&P 500 index, it has delivered solid returns over the past decade. Investing early allows for compounding to work its magic, potentially growing your nest egg over time. Consider adding the Invesco S&P 500 Equal Weight ETF to your portfolio for a diversified investment in the biggest US companies.