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If you want a simple, low-cost mechanical system; go to any stock screener and choose the 10 to 20 largest capitalization stocks it gives you. I'd include the foreign (ADR) stocks but you may want to stick with just big US stocks.

I'm not sure what it means but if you limit your selections to stocks in the S&P 500, and weight your purchases by market cap, then what you are creating is an S&P 10 or S&P 20 index. The top 10 and 20 stocks account or 20 and 30 percent of the S&P index fund respectively.

FYI, there is an ETF that tracks the top 50 companies, the Rydex Russell Top 50 (XLG) which would help get some more diversification and constantly make the changes through the year automatically.

It would be interesting to see if someone has backtested the number of stocks in a large cap stock index and graphed their historical return.

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