After the Fact: Why “All In” on the S&P 500 Looks Obvious… Until It Doesn’t

The very well-respected financial writer Jason Zweig wrote a column in the WSJ last weekend titled, “The Big Scary Myth Stalking the Stock Market”. 📰

We often very much agree with Zweig’s views. He’s an advocate for the individual investor, regularly calling out Wall Street for rampant unethical behavior, questionable/expensive product sales and marketing, amongst other reasons. 🏛️ In this recent piece, however, we have a slightly different perspective on his general theme.

His basic argument is that having 100% of your equity portfolio allocation in the S&P 500 is an acceptable strategy. 📈 He goes on to criticize the Financial Advisor community (us!) for “warning” their clients that the S&P 500 is “excessively concentrated”---simply because Wall Street is instead trying to sell other products such as market timing services, annuities, other “so-called guaranteed “products, indexed universal life insurance, structured notes, hedge funds, private equity, and of course who could forget….private credit! 💼

For the most part, he is right! Wall Street must sell these products because they do not make money with only S&P 500 index funds! And, in fact, we 100% agree that most investors do NOT need any of these products. HOWEVER, we do disagree that having 100% of an equity allocation in the S&P 500 is an acceptable investment plan. ⚖️

First of all, we have to define which investors we are referring to when we say this is not an appropriate strategy. Having a large portion of an equity portfolio in the S&P 500 index may be appropriate for someone in their 20’s or early 30’s...Nothing wrong with that as they are just starting to accumulate wealth. Instead, we are talking about retirees or investors within 10 years or so of retirement. 👥

Here are just a few reasons why this, in our opinion, would be a poor plan:

History: 📚 There have been 3 times in history where the S&P 500 index has underperformed “riskless” one-month treasury bills for at least 13 years. Investors nearing retirement should NOT bet that this will never happen again. Because if it does, an investor who has all of his/her equity money in the S&P 500 could very well have their retirement security impacted.

Current market structure and valuation: 🏗️ Many do believe the S&P 500 index is a diversified index of US businesses. However, we would argue it is not; instead, it is more of a tech/large growth/AI company index. Look no further than the top 10 companies and their weightings. It doesn’t take a genius to guess what might happen to this index if the investments in AI become excessive (e.g. a “bubble”). In fact, Zweig claims that the concentration in the index (among these giant companies) is not a big deal because these large companies have much more diversified economic exposures than smaller companies do. We are not so sure about that; it may be doubtful that Amazon’s Whole Foods division will prevent Amazon’s stock from getting clobbered If there is a large selloff of AI/tech stocks.

What about the S&P’s current valuation? 💰 Using history as a reference, the index should not be considered “cheap” or inexpensive. In fact, most respected valuation indicators all say this index is within top historical percentiles of valuation.

Behavioral reasons: 🧠 There is a HUGE difference between writing an academic paper supported by long-term historical results….and providing real investment advice and actually living through the results. Sure, when we compare the long-term performance of the S&P 500 index and a 100% equity but globally diversified portfolio, they are very similar. Depending on your starting point, one may outperform the other by a small margin and vice versa. BUT---it is the potential of the long drawdowns (in years!) that matters!! Let’s go back to the last 13-year period of underperformance which was during the 2000-2010 decade. Realistically, do we think any investor would have stuck with this strategy for 13 years and “waited” for the recovery? They would have had to sit through zero returns for over a decade while small cap stocks and international stocks were soaring. Very small chance of any investor staying the course. And remember, the best investment plan is only the one you can stick with!!

So, what is the better solution in our opinion? ✅ A portfolio that can provide a similar long-term return, but also minimizes your chances of years-long drawdowns. (And what we are about to describe can still be accomplished with low-cost index funds!)

We wrote about this in March 2025 here…. 🔗 https://ncmcapitalmgmt.com/ncm-blog/dont-let-the-market-correction-derail-your-retirement-plansdiversify-heres-why

This blog referenced that if you invested just in the US stock index you would have had a negative return in 20% of any previous 5-year plus periods. 📊 A globally diversified stock portfolio instead had zero periods of negative returns. So, if history shows the long-term returns of both strategies have been fairly similar, wouldn’t it make sense to choose the one that has lower odds of years-long drawdowns? Again, think behaviorally…what retired or close to retired investor will stay the course through five years with zero return on their equity portfolio?

Let’s be honest, in today’s world where everyone has access to instant information and it is easier than ever to trade, every investor’s time frame gets shorter and shorter. ⏳ Investors have zero tolerance and patience to wait things out. But by choosing a strategy that has higher staying power and a lower chance of more frequent and bigger drawdowns, it is possible that you will earn a very similar long-term return anyway! (Interestingly enough, from the date of this blog in March 2025 until now, each of these other asset classes have outperformed the S&P 500! Is this possibly the start of a multi-year run? Or does the S&P 500 re-establish its lead? Nobody knows! And that is why you diversify!) 🌎

A globally diversified equity portfolio will certainly include a healthy allocation to the S&P 500, but also will include dividend stocks, value stocks, small cap stocks and some mix of international large and small stocks. And again, this can be accomplished with very reasonable internal fees! 💼

In summary, only today, AFTER a decade of material outperformance of the S&P index, would this argument be made for allocating 100% of an equity portfolio to the S&P. Was this same case being made between 2005-2015 (….which certainly would have been a great time to do it!)?

IT IS ALWAYS AFTER THE FACT WHEN THE “BEST” STRATEGY SEEMS CRYSTAL CLEAR. 🔎

Recency bias wreaks havoc on our decision making! ⚠️ We wish there was a way to measure how many retirement plans were destroyed by this behavior. Unfortunately, we’d guess many.

Again, we agree with Zweig in that investors do not need any of those aforementioned products or solutions, but we feel that investors SHOULD diversify beyond just the S&P 500 index (with low-cost products) if they are in retirement or within 10 years or so. 🌍

Source: Dimensional Fund Advisors.

Disclosures: This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of NCM Capital Management, LLC and are subject to change at any time based on market and other conditions and NCM does not undertake to update or supplement its newsletter or any of the information contained therein. Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable. There is no guarantee that the investment strategies discussed above will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Investment advisory services are offered through NCM Capital Management, LLC, an SEC-registered wealth advisory firm domiciled in New Jersey. This communication is not to be construed or interpreted as a solicitation or offer to sell investment advisory services.  For additional information about NCM Capital Management, LLC, you may request a copy of our disclosure statement as set forth on Form ADV. Readers are encouraged to consult with their own professional advisers, including investment advisers and tax/legal advisors. NCM Capital Management, LLC does not provide legal or tax advice. NCM Capital Management, LLC can assist in determining a suitable investing approach for individuals, which may or may not resemble the strategies outlined herein.