The S&P 500 index is the de facto stock market gauge used by Wall Street.
If you want to invest in the index, it’s best to opt for the most cost-effective option.
However, a second option may offer a safety valve today, albeit at a higher cost.
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The percentage change in the S&P 500 index is what you’ll likely be told if you ask someone how the market is doing. Currently, the big-picture answer is that the market is performing well, closing out 2025 with a roughly 16% gain for the year. In fact, the S&P 500 is trading near its all-time highs.
Here are two very different ways you can invest in the index today. One is all about keeping your costs low. The other is about shifting your portfolio away from the technology sector that may, perhaps, be in a bubble.
The S&P 500 index isn’t actually designed to track the market. Its purpose is to be representative of the broader U.S. economy. That could be arguing over nuances, but it is important to consider when examining how the index is created.
Image source: Getty Images.
A committee selects around 500 stocks that are large and economically important. The goal isn’t to simply pick stocks that perform strongly. In fact, by the very nature of the goal, the committee is likely to end up selecting stocks from poorly performing sectors of the economy. There’s a very diverse mix of companies by design.
The stocks are weighted by market cap. Thus, the largest companies have the biggest impact on the index’s performance. That makes logical sense since that’s basically how the economy works. However, that presents a potential problem, since market cap weighting often leads to the index being overweight in the top-performing sectors (more on this below).
Still, at the end of the day, every investment product that tracks the S&P 500 is, basically, doing the same thing. You should look for the one that costs you the least to own. For most, that’s likely to be Vanguard S&P 500 Index ETF (NYSEMKT: VOO) and its ultra-low 0.03% expense ratio. That’s as close to free as most investors are likely to find on Wall Street.
The primary issue with buying the S&P 500 index currently is that it is heavily weighted in the technology sector, which accounts for approximately 35% of the index. That’s a huge investment in just one sector, driven by the market cap weighting approach being used. What happens if tech stocks tank in 2026? The answer is that the S&P 500 will feel the pain quite acutely.
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An option for investors concerned about the S&P 500’s tech exposure is to purchase an S&P 500 variant that operates slightly differently. Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) employs, as its name implies, an equal-weighting methodology. This means that every stock will have an equal impact on the performance of this exchange-traded fund (ETF).
It also means that the technology sector only makes up around 14% of the ETF, roughly similar to the exposure it has to the industrials, financials, and healthcare sectors.
There are two big caveats here. First, the expense ratio is a bit high at 0.2%, but the ETF is doing something unique, so the extra cost is probably worth it. Second, Invesco S&P 500 Equal Weight ETF will lag the S&P 500 index during narrow bull markets that are led by just one sector.
However, when narrow bull markets turn into bear markets, Invesco S&P 500 Equal Weight ETF can offer some protection from the drawdown due to its more diversified portfolio. If you are concerned about the lofty level of the S&P 500 index and its heavy technology exposure, this equal-weight version of the index could be a smart alternative to consider.
If you want broad market exposure, the S&P 500 index is a great option. Vanguard S&P 500 ETF is one of the most cost-effective ways to invest in the index, making it a strong choice for your portfolio. However, you don’t have to go the normal route. If you are concerned about the S&P 500’s heavy tech concentration, you may prefer to own Invesco S&P 500 Equal Weight ETF, which holds the same stocks but with a vastly different weighting methodology.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Here’s the Smartest Way to Invest in the S&P 500 in January was originally published by The Motley Fool
