The Best ETF to Buy: Reconsidering Your Index Fund Strategy

Why Your Standard S&P 500 Fund May Be Missing Opportunities

Most investors default to conventional S&P 500 index funds like the Vanguard S&P 500 ETF (VOO), which is understandable given their proven track record. Over the past 15 years, the S&P 500 has outpaced 88% of managed large-cap mutual funds, and over the past decade, it’s beaten 86% of them. Even legendary investors like Warren Buffett endorse this approach. The logic seems airtight: low fees, broad diversification, and consistent performance.

But there’s a structural weakness hiding in plain sight.

The Concentration Problem Nobody Talks About

The reason these funds perform so well reveals their critical flaw: market-cap weighting. This means larger companies dominate the index. Currently, just five stocks—Nvidia, Microsoft, Apple, Amazon, and Meta Platforms—account for nearly 28% of the fund, despite representing only 1% of the 500 components.

This creates dangerous leverage. When these mega-cap giants surge, your returns look fantastic. But when they stumble, the entire index stumbles with them. Your “diversified” portfolio suddenly hinges on a handful of companies’ quarterly earnings.

The Equal-Weight Alternative: A Better Tool for Balanced Growth

The Invesco S&P 500 Equal Weight ETF (RSP) offers a fundamentally different approach. Rather than allowing five companies to dictate market movement, it allocates roughly equal weightings across all ~500 holdings. Your top holdings would comprise just 1-2% of the portfolio’s total value.

This matters more than you’d think. When mid-cap and smaller components within the S&P 500 outperform the mega-cap leaders—which happens regularly during market rotations—an equal-weight structure captures that outperformance more effectively. It’s one of the best etf to buy when seeking exposure to the broader market without the concentration risk.

Solid Returns, Lower Volatility

This isn’t theoretical. The equal-weight approach has delivered competitive returns over time, often matching or exceeding traditional S&P 500 funds during periods when mega-cap dominance weakens. The added benefit: reduced vulnerability to sharp pullbacks from a single sector or company.

For long-term investors prioritizing steady wealth accumulation over reliance on a few winners, the Invesco equal-weight ETF provides a compelling alternative worth considering alongside your core holdings.