Many individual investors are now choosing a purely passive approach and going all-in on the S&P 500 for equity exposure. It's easy to see why. The go-to US indexes have performed very well over the past decade. However, in today's different economic context, in a world of rising inflation and rising interest rates, the returns may not be as promising. So if you're looking to invest in stocks for the next 10 years, you'd better find a new winner.
Why not own the S&P 500?
Even if you passively choose the S&P 500 as your primary exposure to stocks. teeth We welcome positive opinions.First, you are betting on it US stocks continue to outperform global stocks (Despite already having a record track record of outperforming global equities over 15 years). Second, you are betting on: The return of trends that supported high-tech companies (lower interest rates, macroeconomic stability, etc.). Third, we are betting that the S&P 500 will. To maintain record premiums over other regions and investment styles.And in the end you are betting on it The US dollar will remain at least as strong as it is now.
If you are making a deliberate bet, just keep going. However, if you are choosing the S&P 500 simply because it is your default choice, you may want to consider some alternatives. Here are four to consider…
1: Go with the same weight
If you still want to invest exclusively in the US, but want a more balanced exposure, consider an equal-weighted S&P 500 ETF, which holds the same proportion of all stocks in the index, regardless of size or sector. can also do.
You'll still be betting on American companies, but you'll have more exposure to small-cap stocks trading at cheaper valuations than your S&P 500 weight. You're more likely to have more contact with companies that don't. already Well done and low concentration riskThis means that we are less dependent on the performance of a small number of companies.. (Almost 20% of the S&P 500 is made up of just five stocks). It also has much lower exposure to the technology sector and higher exposure to materials, industrials, and real estate.
The equally weighted S&P 500 tends to underperform when bull markets end because it has higher exposure to the real economy (and lower exposure to sectors most sensitive to speculation). excellent We are in the early stages of economic recovery. You can see how it played out in 2000 and 2008 (blue line).

After a bubble bursts, the equally weighted S&P 500 tends to outperform. Source: Finimize.
And if interest rates and inflation remain high for an extended period of time, the equal-weighted index could even outperform the S&P 500, as sectors related to the real economy are likely to outperform technology in that environment. There is.
US investors may consider: Invesco S&P 500 Equal Weight ETF (Ticker: RSP, expense ratio: 0.2%) Europeans, on the other hand, Extra Trackers S&P 500 Equal Weight UCITS ETF (Expense ratio: 0.25%).
2: Globalization
Indeed, American companies are highly innovative and profitable, directly serving the world's largest economy and its significant customer base. But investing is not just about finding the best companies, it's also about buying companies at attractive prices. And by that standard, stocks from other places (i.e. international stocks) are attractive. U.S. stock valuations are above their 20-year average, while international stocks are below valuations. And, as the graph below shows, foreign stocks are trading at near record discounts compared to U.S. stocks.

Foreign stocks are very cheap.Source: JPMorgan Asset Management
International stocks also pay higher dividends, have higher exposure to the real economy, and have a higher potential for sales and profit growth. It may not look as good as current US stocks, but if you have a long-term investment horizon (10+ years), it's worth a look. They still have room for improvement. that They tend to produce higher returns. Last but not least, international stock investors could benefit greatly this year as international currencies strengthen against the unusually strong US dollar.
To have broad and diversified exposure while maintaining a weight in U.S. stocks, U.S. investors can consider: Vanguard International Stock Total ETF (VXUS; 0.07%), European investors Vanguard FTSE All World UCITS ETF Distribution ETF (Expense ratio: 0.22%).
3: Pursue more value
Value stocks may not be as attractive as when we called them “once-in-a-lifetime opportunities,” but they are stocks in this group (usually priced low relative to earnings, book value, or cash flow). stocks) are still trading. This is an attractive discount compared to the growth stock and its history.

Value stocks are cheap.Source: JPMorgan Asset Management
If the economy is indeed entering a period of rising interest rates, higher inflation, higher volatility, and a recovery in the real economy, then value stocks will do well, outperforming the S&P 500 by several percentage points annually. there is a possibility. . That's because value stocks not only offer more stable cash flows, but also higher dividend yields and greater exposure to the real economy. That means value stocks are underweight in tech and consumer discretionary sectors and overweight in financials and health care relative to the S&P 500. , industry, daily necessities, energy. They are also likely to benefit from a reduction in the FOMO, speculation, and financial engineering that have boosted growth stocks in the past.
For US investors, Vanguard Value ETF (VTV; 0.04%) generally provides exposure to value stocks. You can focus on value stocks from developed countries. iShares MSCI EAFE Value ETF (EFV; 0.35%) or in emerging countries. SPDR S&P Emerging Markets Small Cap ETF (EWX; 0.65%). For European investors, iShares Edge MSCI USA Value Factor UCITS ETF (Expense ratio: 0.2%) is a choice for generalists; iShares Edge MSCI World Value Factor UCITS ETF (Expense ratio 0.3%) Focusing on value stocks from developed countries, iShares Edge MSCI EM Value Factor UCITS ETF (0.4%) focuses on emerging market value stocks. If that's not enough, check out this guide.
4: Make it smaller
If there's one group of stocks that seems to be getting less attention, it's small-cap stocks. Not only are these stocks cheaply valued relative to their own history, but they also trade at the largest discount to large-cap stocks since the dot-com bust of 2000.

Small stocks are cheap.Source: Bank of America
Indeed, small-cap companies are less profitable, have more volatile cash flows, and are more cyclical, all of which make them more risky. That said, they now have a larger valuation cushion, greater growth potential, a larger dividend yield, and higher exposure to the US domestic economy. They have much less exposure to the technology sector and much more exposure to the real economy, with a higher weight in the industrial, financial, real estate, and energy sectors. As such, they are likely to benefit if the inflationary environment develops further. Additionally, over the past decade, trends such as globalization, deregulation, and near-zero interest rates have disproportionately benefited large corporations. With these trends likely to reverse, small-cap stocks could significantly outperform the S&P 500 over the next decade.
To invest in U.S. small-cap stocks, consider the following: Schwab U.S. Small Cap ETF (SCHA; 0.04%) If you are based in the United States, SPDR Russell 2000 US Small Cap UCITS ETF (R2US; 0.3%) If you are based in Europe. For investors looking for both cheap U.S. stocks and small-cap stocks: Vanguard Small Cap Value ETF (VBR; 0.07%) may be a good option. And for those who want international, cheap, small-cap stocks, Vanguard FTSE All World (Ex-U.S.) Small Cap ETF (VSS; 0.07%) could fit the bill.
Don't get me wrong. There is no guarantee that these four options will provide higher returns than the S&P 500 over the next 10 years. But given the lower expected returns of the S&P 500 and the margin of safety added by better valuations, they certainly caught my eye. Even if you're only a few percentage points over the course of a year, it can make a big difference in your savings at the end of the decade.Of course, I'm not advising you to replace all Calculate S&P exposure using these four options. But rotating at least some of it can increase your risk-adjusted returns. At least that's what I've done with my own long-term portfolio.