Could you be investing in this risky, yet publicly recommended, investment?
Many people will choose this investment because it’s supposed to be diversified and safer. However, more and more, recent data is showing that’s false. Find out if YOU are at risk too.
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This Most Popular Investment Has Become Risky
Welcome to our show. It’s for you, those that work so hard for your money, and you’re now ready for your money to start working harder for you today. You want that freedom and cashflow right now, not 30 or 40 years from now but you want it now so that you can live the life that you love with those that you love. Most importantly, it’s not just about getting rich. It’s about creating a rich life because as you are blessed financially and as you have greater resources and means to bless the world around you, then you can create a greater ripple effect through the lives of others. That is exactly what I’m here to do for you.
Thank you for reading. I appreciate those of you that should have been reaching out, even those of you in Utah that saw us speak live. Welcome to the Money Ripples family. We’re so excited to have you here as a part of us. As a reminder, if you have not done so already, also subscribe to our YouTube channel, the Money Ripples Podcast channel. For those of you that are on the Money Ripples Podcast channel if you didn’t know this, we also have the Money Ripples YouTube channel where we have a lot more videos coming out beyond these episodes.
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I want to talk about this particular investment that has become very popular. Everybody in the media is talking about it. Everybody has been telling you to buy it, even guys that seem like they would be against the grain, or maybe they’re new and fresh because they’re part of the up-and-coming generation yet they all tell you to invest in the same place. Even though it’s already been this way, it’s becoming riskier to the point where you could lose a lot of money putting your money in this place. Is it crypto? Absolutely not. It’s not crypto although I don’t recommend that either.
This place very possibly has money in it. It’s considered to be smart to put your money in this place by many so-called experts. What is that? That is the S&P 500 ETF or Exchange-Traded Fund, or as many people call the ticker SPY or the spider. This is the fund where many people will tell you to put your money. You will hear people all the time say, even Ramit Sethi, “It’s low-cost, and it gets better returns to most mutual funds.” That is true. It’s already been proven again and again that 90% of mutual funds don’t even do as well as S&P 500. However, the S&P 500 still has mediocre returns.
As you’ve heard me say on this show before, I updated my numbers. The S&P 500 30-year actual yield was 7.65%, not 10% or 12%. It’s drastically less than what everybody is telling you. Think about it. If you have mutual funds outside of the S&P 500, that means long term you’re probably going to do worse than 7.65%, and even more so, especially after you factor in fees that aren’t even considered as part of that rate of return. When those fees come out, your return is even lower than what they report but the reason that this has become risky is if you understand the S&P 500, how it’s calculated, and how it’s done because you might see those numbers. It might seem like a bunch of random numbers.
Most of America have no clue what this is but they talk about the S&P 500 as the 500 top companies. As companies grow and shrink or grow in size compared to others, some are taken out. Some are put back in but what many people don’t realize is the S&P 500 has a weighted average. What does that mean? That means that the biggest companies have the biggest percentage of the S&P. If the S&P 500 goes up, it may not be because the overall stock market or all 500 stocks are going up. It’s because the biggest companies might have gone up that day or that year for that matter.
This is why many people lost a decent amount of money in the S&P 500 last year. It was about a 20% loss. What does that mean? Understand that if you’ve ever heard this before, they talk about the FAANG stocks. They take out the M, which stands for Microsoft because it’s not a cool company but when you talk about these top stocks, this is usually involved in this as well. The top companies are this.
Part of the A is Apple. Apple is the top-weighted stock in the S&P 500. Did you know that it’s over 7% of the S&P 500? That means if Apple ever tanks even if the rest of the stock market is fine, it’s possible that the S&P 500 index that you’re investing in could still go down even though other stocks are flat or going up. That could by itself influence the S&P 500. The next biggest one is Microsoft. Between the two of them, Apple and Microsoft are under 14%. That means 1/7 of the S&P 500 is Apple and Microsoft, those two companies together. That’s it. One-seventh of the S&P 500 index price is those two stocks.
You think you might be diversified in the S&P 500. You are not. In order, we got Amazon. It’s about 2.68%. It gets a little bit less over here. Nvidia is 2%. Alphabet is also known as Google. It’s about 3.5% between those two. We also have Facebook, which is over 1.5%. If you tally those companies together, Apple, Microsoft, Amazon, Nvidia, Google, and then Facebook, or those six stocks alone, you’re getting about one-quarter. About one-quarter of the S&P 500 is manipulated by those six companies.
Apple, Microsoft, Amazon, Nvidia, Google, and Facebook are the six companies that manipulate about one quarter of the S&P 500 Trust ETF. Click To TweetAre there other companies involved? Yes, but this is why when you see tech stocks get hammered, the S&P 500 goes down more than some of the other indices that aren’t weighted toward bigger companies. They’re spread evenly among all the companies. You also have the Nasdaq, which is very tech-heavy. This is why the S&P 500 year-to-date after the recovery from the stocks coming back has done almost 10% from the beginning of the year to the beginning of June. The Nasdaq has done about 25% year-to-date but that’s also because it got hammered quite a bit last year as the S&P 500 did.
Tech stocks have been driving this force. This means you’re not diversified as you might think. I’m looking at the Nasdaq. You can see year-to-date. That’s the daily total you see here but it’s about 25%. It was over 10,000 in January. It’s now up to about 13,100. This is a 25% year-to-date. If I go back, I’ll start looking at these other ones, not just the S&P because that one is very similar. Let’s look at the Russell 2000. The Russell 2000 is a much more diverse type of thing here.
We’re going back to the beginning of 2023. It was about 1,750 as of January 3rd. Now, it’s 1,767. Notice it’s pretty much flat. Stocks overall for the first part of this year have been flat. Although you might have noticed the S&P 500 saying, “I’ve made 10% almost. This is great. That’s an awesome year. That’s great for five months,” in truth, the stock market has been flat overall. It’s only been the tech stocks that have been skewing these numbers of S&P. You might think, “I’m lucky.”
You’re lucky in this case but what happens when stocks crash, which are already massively overvalued, and a lot of it has been this whole AI talk going on? People are creating another bubble in this. What happens to your precious S&P 500 index at that time? You lose more than what the stock market is losing. It might be that the stock market could be going slightly up or flat but because those tech stocks are getting hurt if you’re trying to invest in the spider or the QQQ, which is the Nasdaq, and those places, you’re getting hurt much worse because they’re not diversified, meaning you are taking a lot more risks.
Even if you have a mutual fund or even if you’re in the Russell 2000, you’re still not diversified because you’re still in equities and paper assets. Even though you’re among multiple industries, you’re still in one type of asset class. This is why we talk about diversifying among multiple asset classes, not just one because you don’t want to be the person caught saying, “I thought if I buy stocks and bonds, I’ll be fine.” Ramit Sethi says, “I do 70% stocks and equities and 30% bonds.” That’s a boring portfolio. That’s great if you’re making a lot of money in your business to make up for those potential losses and those mediocre returns over the long haul.
This is the problem when you have experts out here talking about stuff, even with Dave Ramsey. This guy has a good heart. He does good work, especially for those people trying to get started in life financially. He can give a lot of good guidance but the problem is when he starts talking about investing, he doesn’t even tell you to do the things that he’s done. He invests first and foremost in his business. It was real estate. He has over $700 million in real estate portfolio and then some stocks. The stocks for him are play money but he’s telling you to invest in those things that didn’t even work for him in the first place. It wasn’t the thing that got him wealthy. It didn’t get him financially free.
He’s telling you to do the things that everybody else is trying to sell you, which is a bill of goods and a bunch of crap because these financial institutions that give all the financial education out there like Merrill Lynch, Goldman Sachs, Fidelity, and everybody else are the ones putting out all of this education information so that you buy it, hook, line, and sinker, yet you’re the one that still suffers when the market goes down. They get paid regardless because you keep your money with them. They’re going to tell you, “Don’t sell when the market goes down.”
Why? It’s because they want to keep getting paid when the market goes down even though you should fire their butts and get rid of them but you don’t because you’re told, “You’re in it for the long haul. High risk creates high returns. This is part of the game. Ride those waves. Over time, you will make more money.” That’s a half-truth. Over time, you will make more money but are you barely keeping up with inflation over that period? There are such mediocre returns. Maybe you beat it. Maybe you don’t beat inflation, depending on which time period you’re looking at. Understand the problem here.
The number one investment or the one that everybody says is wise to do is the one that I’m looking at while saying, “I wouldn’t even trust my money in that place but maybe play money.” Even now, the market is so overvalued. Even other stock investors are looking at this thing, “This market is so overdue to go down.” It’s ridiculous because all the money that got pumped in during COVID created a massive bubble, yet you think this might be the safe place to be.
Even worse is if you’re holding Apple stocks, Google stocks, or Meta stocks. If you’re holding those stocks, you are gambling. You might say, “It’s coming back. It’s going up. I want to get my money back from what it was in 2021.” What if it doesn’t get up there? What if it starts going down again? “I don’t want to lose money. I’m going to hang onto it a little bit longer.”
This is the trap that everybody gets stuck in because when I coach people on stocks and options and how to trade those things, that’s exactly what they got stuck on. That’s why they needed trading rules to keep them from making these dumb emotional mistakes that cost them the most money and set them back years if not decades to be able to create that financial freedom. Do not get caught in that trap. Do not believe for one second that you are diversified if you’re in the S&P 500 or anything like that. You are not.
It’s very tech-heavy. If you look at the whole tech industry, it’s more than a third of the S&P 500 portfolio. Even if it’s just the tech industry by itself, you lose money. Those six companies make up about a quarter of the S&P 500. It’s a very big risk. That’s a big gamble that I wouldn’t be comfortable doing. I’m not saying you should sell off anything. I’m not giving investment advice here. I’m saying, “What are you thinking? Do you believe that this is the best investment available?”
I love buying real assets that I can control. I like buying assets that can create cashflow for me and not go up and down based on the whim of whatever they want it to be. I don’t want to have a weighted average. That’s gambling with my money. I want to diversify. I can even diversify among the real estate in different types of classes of real estate within real estate and still have paper assets like what a financial might offer. That’s why I have my life insurance and things like that with a cash value where I know it’s guaranteed it can grow and has some certainty in addition to my real estate investments, my oil and gas investments, and things like that, even with the gold and silver that I hold.
Even though it’s a tiny percentage, I still have that to protect my money. You do whatever you want to do but I’m saying. Don’t get caught in this trap. Do not believe for one second because everybody tells you to do it that this is the right move because it will be coming out in the news sooner or later. People say, “That wasn’t the best move.” Things changed. All the time in the financial industry, they keep trying to come back to agree with what I’ve said for years. It keeps happening again like the 4% rule that has been debunked so many years ago but you still hear popular people out there say, “4% rule.” Newsflash, the 4% rule is dead and has been dead.
Wake up to the 21st century because at the beginning of the 21st century, we started questioning the 4% rule, and now they’re saying maybe a 3% rule is best. Who’s to say in the future? They might even change that to make it a 2% rule, which I’ve said to you. If you’re trying to retire younger, 2% is the rule you’re trying to do if you have retirement accounts and mutual funds that you’re trying to live off of longer-term but you should do the traditional retirement planning that they tell you to do. If you save $1 million, you shouldn’t be pulling out more than 3% so you don’t run out of money with inflation and lower rates and returns that you’re getting in the markets. It’s miserable.
I’m not going to beat this dead horse anymore. I want to be able to put this word of warning out there to let you know you’ve been warned. The S&P 500 is not all that in a bag of chips. It is not the best thing since sliced bread. If anything, it’s a very weighted tech-heavy slice of bread. I made up that weird analogy, which is not even that good of an analogy in the first place. Why is it sliced bread? I don’t know. The fact is you do what you feel is best for your situation. Remember, we are here to support you. This is why I’m doing this. I want you to be empowered and educated so you can make the right decisions for yourself. Go and make it a wonderful and prosperous week. We will see you later.
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