Dear Reader,
Passive investing is usually associated with buying and holding a fund that tracks an index.
And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund.
However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
Since January 1995, 728 tickers have been added to the S&P 500, while 724 have been removed.
This comes with two significant implications.
One, The S&P 500 will bump laggards for up-and-comers.
Two, The S&P 500 is getting bigger and more diverse.It's essential to keep in mind that the S&P 500 is not 500 businesses.
It's 500 companies with tons of businesses under their massive umbrellas.It may be helpful to think of the S&P 500 as a dynasty — a ruling family or a sports team, whichever works for you.
Whether it's the Kennedy's or the Los Angeles Lakers, you have a well-known name that dominates for a long time. But the family members and players are constantly changing, and they go through periods of ups and downs as they expand their empires or accumulate championships.
The bottom line is that you do not get S&P 500-like performance by buying one set of stocks and holding them forever.
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