The fact that the S&P 500 was just marginally lower for 2025 as of Monday highlights how crucial it is for investors to avoid overreacting to daily occurrences that result in worrying stock market falls. You now have the chance to alter your investment portfolio.
After a chart, let’s ask you some questions about how you think as an investor. This is the performance of the S&P 500 as of Monday this year. In this article, reinvested dividends are included in all investment returns.
Through Monday, the S&P 500 SPX was only marginally lower for 2025. Following Treasury Secretary Scott Bessent’s announcement of a preliminary agreement between the United States and China to reduce tariffs, the large-cap U.S. benchmark index surged 3.3%.
However, as of April 8, the index was down 15% for 2025, with the majority of that fall occurring after President Donald Trump announced a number of tariffs on April 2 in a “liberation day” declaration.
Investors’ displeasure of a significant shift in U.S. economic policy was reflected in the stock and bond markets. Additionally, the Trump administration’s more recent actions to start lowering the tariffs have paid dividends for investors.
Did you think you could have too much of your investment portfolio invested in the S&P 500 during the worst of the April stock market decline? Due to its market capitalization weighting, the index is extremely concentrated. The $597 billion SPDR S&P 500 ETF Trust SPY owns all of the index’s components, but because it owns both Class A (GOOGL) and Class C (GOOG) shares of Alphabet Inc., it is 36% concentrated in its top 10 holdings, or actually 11 equities. The top three stocks in the SPY portfolio are Nvidia Corp. (NVDA), Apple Inc. (AAPL), and Microsoft Corp. (MSFT), which together account for 18.9% of the total.
After Trump’s disruptive tariff pronouncements, it was evident that the wisest course of action for anyone investing in an S&P 500 index fund was to do nothing, or even to continue making monthly contributions to a retirement account. The market’s readiness to reward any easing of trade policy is demonstrated by the chart. And it serves as a reminder: The stock market has repeatedly experienced corrections, which are often characterized as drops of at least 10% from a recent peak, and bear markets, which are characterized by drops of 20%, but it has consistently rebounded. According to FactSet, the S&P 500’s average annual return over the last 30 years was 10.4% as of Monday.
You probably feel relieved if you were concerned and regretted holding a sizable portion of your portfolio in an S&P 500 index fund, but you persevered through the recovery. However, it’s time to reconsider your plans to reallocate a portion of your portfolio.
Paul Merriman’s article demonstrates how rising bond allocations have impacted portfolio results over the years. According to data Merriman examined dating back to 1970, altering your asset mix might reduce volatility without significantly reducing your long-term returns if you are a long-term investor accumulating a retirement fund.
Returning to stocks, which are still likely the best investment for the majority of your portfolio if you are still building your retirement account over several decades, there are less volatile indexing strategies that lower concentration risk while maintaining your investment in major U.S. corporations.
An index strategy that focuses on equities with comparatively low price volatility may be something to think about if waiting through times of increased volatility is too taxing for your mind. When its portfolio is reconstituted, which occurs four times a year in February, May, August, and November, the Invesco S&P 500 Low Volatility ETF SPLV holds the 100 stocks in the S&P 500 with the lowest price volatility over the preceding 12 months.
Through May 12, 2025, SPLV was up 4.5% while SPY was down 0.2%.
“A more conservative strategy to help people get better sleep at night,” said Nick Kalivas, head of factor and core strategy for exchange-traded funds at Invesco, in an interview with MarketWatch. Additionally, the low-volatility index strategy has performed admirably thus far this year. However, based on the performance numbers below, the low-volatility technique may be too costly over longer periods of time. Morningstar has given SPLV a three-star rating out of five in the U.S. Fund Large Value category.
An index strategy that prioritizes S&P 500 quality names
The Invesco S&P 500 Quality ETF SPHQ, which has a five-star rating in Morningstar’s U.S. Fund Large Blend category, may be of interest to a dedicated long-term investor who is a little less concerned about volatility but still want to reduce exposure to the largest components of the S&P 500.
This fund follows the 100-stock S&P 500 Quality Index, which is kept up to date by S&P Dow Jones Indices. Twice a year, on the third Friday in June and December, the index is recreated. A quality score that combines return on equity, debt-to-book value, and a “accruals ratio” of operational assets to total assets is used to choose the top 100 stocks from the S&P 500. The quality scores are then multiplied by the market capitalizations of the companies to determine their weight within the index. When the index is rebalanced, there are weighting restrictions, such as a 5% cap for each stock.
According to Kalivas, for businesses with low equity levels on their balance sheets, the debt-to-equity rating component allays worries about high returns on equity.
For investors looking for quality, the accruals component is intriguing. “The idea is that companies with low accruals have a large amount of cash flowing through the balance sheet – a higher cash component to earnings,” he stated. This implies that a business that takes too long to collect payments from clients after delivering goods or rendering services will be punished throughout the scoring procedure. Kalivas observed, “Quick collections would give lower accruals.”
With the top 10 holdings accounting for 47.3% of the Invesco S&P 500 Quality ETF as of Friday, the grading method creates a concentrated portfolio. However, only three of its top ten holdings—Apple, Nvidia, and Meta Platforms Inc. (META)—are also in the top ten S&P 500 components.
