Skip to main content
No. of Recommendations: 3
A different opinion than Jim's on cap-weighted indexes.

While market capitalization weighted indexes are currently more concentrated than usual, they are still very well diversified based on the small amount of extra expected return the biggest stocks would need to offer to compensate for their weight in the index. In sum, market capitalization weighting is the best index design available, offering the most efficient and diversified exposure to the broad stock market."

On the whole, I more agree with Jim's argument, and think that the main reason for large indexes to be cap-weighted is that cap weight automatically stays in balance, whereas any other weighting has to be actively rebalanced periodically.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.