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Ben Felix - Investing in the S&P 500

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Author: Ben Felix
Categories: Personal Finance
Tags: finance
Views: 2 · Last viewed: 2026-10-15 07:49 UTC

Short Summary

Main recommendation: Ben Felix argues that investing only in the S&P 500 is not the most reliable way to capture US stock returns, and that most investors are better served by a globally diversified portfolio of total stock market index funds. He acknowledges the S&P 500 is well-diversified and low-cost, so holding it is "not the end of the world," but he says it is not the only index an investor should own.

Key Points

  • The S&P 500 tracks 500 US stocks covering roughly 80 percent of US market capitalization, while there are closer to 3,500 US stocks, so owning only the S&P 500 leaves substantial room for error in capturing US market returns.
  • Its strong past performance is statistically unusual: in a bootstrap analysis by Jared Kizer of Buckingham Strategic Wealth, only 0.57 percent of 100,000 simulated 116-month periods beat the index's risk-adjusted returns from March 2009 through October 2018.
  • Global revenue exposure does not equal global diversification: the S&P 500 holds US companies, and a Vanguard 2019 paper found the global market-cap-weighted portfolio had even lower volatility than US stocks alone.
  • Concentration risk is real: Japan was 45 percent of the global stock market in 1989, and Japanese stocks returned 0.61 percent per year on average in Canadian dollar terms from January 1989 through June 2019.
  • Valuations matter: the S&P 500 had a price-earnings ratio of 20.5 as of June 30, 2019, versus 14.6 for Canadian stocks and 14.7 for international developed stocks.

Details Worth Noting

  • Concrete instructions: Felix's recommended approach is to hold the total stock market through a globally diversified portfolio of total stock market index funds. He does not give dosages, amounts, or a step-by-step setup in the transcript; the actionable guidance is to avoid relying on the S&P 500 alone for US equity exposure, to diversify across countries, and to avoid overweighting the most expensive market.
  • Felix notes the S&P 500 is very low-cost to access because of the scale of the ETFs tracking it, and that it is extremely well-diversified compared with an actively managed fund or stock-picking strategy.
  • The index is committee-selected rather than purely algorithmic, which Felix says adds a human element that makes repeating its past results less likely.
  • Hendrik Bessembinder (Arizona State University) found that 811 of 62,000 global common stocks (1.3 percent) from 1990 to 2018 explained all wealth creation above Treasury bill returns, showing how hard it is to pick winners.
  • Smaller stocks, including roughly 3,000 US stocks outside the S&P 500, have tended to beat larger stocks over the long term, according to Felix.
  • Over January 1970 to June 2009 in Canadian dollars, the S&P 500 returned 9.66 percent, the MSCI EAFE 9.28 percent, and the S&P/TSX 9.42 percent, while an equal-weight rebalanced mix returned 9.84 percent with lower volatility.
  • Felix says he is not saying to bet against US stocks, since valuations can keep rising for a long time.

Bottom Line

The S&P 500 is a reasonable, low-cost holding, but relying on it as the whole US allocation or treating it as a substitute for global diversification leaves investors exposed to concentration and valuation risk.