No. of Recommendations: 17
Baltassar wrote from the Berkshire board:
For myself, I would not consider SPY or QQQ as LTBH choices from where we are at the moment.I agree. I would replace these two market cap weighted index ETFs with equal weight versions; replace QQQ with QQQE and replace SPY with RSP. As a variant to the equal weight index RSP, you could alternatively use a mid-cap S&P500 ETF such as SPMD, as the returns were, and will be, extremely similar between mid-cap and equal-weight. We just want to avoid the large-cap weighted index right now.
The reasons:
1. Over the long term, even starting from an average valuation for all indexes, the equal weight (and likewise the mid-cap) index outperformed the market cap weighted index by about 1.5% per year after expenses.
2. To make matters worse, we are not starting from an average valuation for both indexes. The market cap is particularly expensive relative to equal-weight (or mid-cap) *right now* and this is reflected in the equal weight index not having outperformed, to its longer 100 years+ historical level of about 1.5% per years, over the last 20 years. So I expect the forward 20-year return from here to favour the mid-cap over the S&P500
even more than 1.5% than it did historically. The following chart shows the ratio of S&P MidCap 400 price-to-earnings, to the S&P500 price-to-earnings:
https://www.rbcwealthmanagement.com/en-asia/wp-con...It is a bad time to enter the S&P500,
relative to a mid-cap, or equal weight variant, right now.
- Manlobbi
