Welcome to the Stay Walthy podcast. I'm your host, Taylor Schulte, and today I'm talking about the benefits of owning market cap-weighted index funds.

Why? Well, last week, I made a brief comment that there were some benefits to owning them, and a number of you reached out and you wanted to know what those were.

So if like these other listeners, you're also

curious about the benefits of market cap weighted index funds. Today's episode is for you. For

the links and resources mentioned, head over to you staywealthy.com forward slash 128. So as a refresher,

market cap weighted index funds are what most listeners are likely familiar with, whether you know it or not.

For example, the Vanguard total stock market fund is a market cap weighted index fund.

So is any plain vanilla SMP 500 fund like SPY or VO or even a broad-based international fund like IEFA, which is done by I-shares.

In short, most passive index funds that you know by name are market cap weighted, which as shared

last week means that companies with larger market capitalizations get a higher allocation in the fund.

As I also shared last week to help highlight what this actually means to us as investors,

the top 10 holdings in the Vanguard S&P 500 Index Fund currently make up about 30% of the entire fund,

with names like Apple, Microsoft, and Google, i.e., the largest

companies, at the very top. As those companies get bigger and bigger, so does your ownership

of them. In plain English here, with a market cap-weighted index fund, most of your money is being

invested in the largest companies, and less of your money is being invested in smaller companies, even if those smaller companies are high quality, appear to be trading at attractive prices, and have higher expected future returns.

Unfortunately, a company's stock price and market capitalization can deviate wildly from its true

underlying value. In other words, just because a company is large doesn't necessarily mean it's always

a good investment to own. We saw this with General Electric not that long ago when details on

what was going on behind

the scenes finally surfaced, and from top to bottom, the stock dropped 80% from all-time highs.

While I don't think that market cap-weighted index funds are the absolute most prudent way

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