FREE NEWSLETTER
Go to main Forum page »
I received this letter from Fidelity this morning. Interesting that they are now saying that some major index funds may not be diversified investments. What can you do about it? Invest your portfolio in other funds such as fixed income, international, value, or small cap?
Index Fund Policy Changes
Dear Shareholder,
Effective November 10, 2025, the “Principal Investment Strategies” and “Principal
Investment Risks” sections of the prospectus of each index fund shown in the table
below was modified to indicate that the fund may operate as a non-diversified fund, as
defined under the Investment Company Act of 1940, to the approximate extent the
index is non-diversified.
A non-diversified fund may invest a greater portion of its assets in securities of a smaller
number of individual issuers than a diversified fund. As a result, changes in the market
value of a single investment could cause greater fluctuations in share price than would
occur in a more diversified fund.
Shareholder approval will not be sought when a fund crosses from diversified to non
diversified status due to changes in the relative market capitalization or index weighting
of one or more index constituents.
Please see each fund’s prospectus for additional information.
Fund
Index
Fidelity 500 Index Fund
Fidelity SAI U.S. Large Cap Index Fund
S&P 500 Index
S&P 500 Index
VIP Index 500 Portfolio
Fidelity Total Market Index Fund
S&P 500 Index
Dow Jones U.S. Total Stock Market Index
Series Total Market Index Fund
Dow Jones U.S. Total Stock Market Index
Sincerely,
Fidelity Investments
We use VT Vanguard Total World. My indexing question is why don’t “Total World” indexes actually include all nine investing grids and be the Total World instead of being so large cap dominant
VT follows FTSE Global All Cap Index and the index itself is dominated by large growth companies (the index is designed with market capitalization weighting factor). VT composition is made with over 9,000 stocks, covering all 9 Morningstar style box but not equally. It reflects the world of tradable stocks as it is: the top 10 growth companies dominate the index, and a thin long tail of mid-cap and small-cap stocks; hence, market concentration.
Thank you for the clearer explanation of VT. It does make sense. I’m curious as to what the long term outcome would be if all nine groups were equally weighted 🤔
YW. I am equally curious. Invesco S&P 500 Equal Weight ETF (RSP) is the most famous for being the anti – concentration ETF (looking at you SPY, VOO and other cap-weighted S&P 500 indices). In up years, RSP trails badly behind SPY (2023 SPY up 26%, RSP up 14%). One down year 2022, it suffered less (-12% vs SPY -18%). RSP covers all top 500 companies, but none is allowed to win.
How I treat indexing, I use Total World Stock etf for 100% for our Roths.
IRA domestic stock allocation, currently 45%, target 50% to make the math work in this reply
I allocate in target–5% S&P 500, 7.5% Growth Index & 7.5% Value Index, 5% PrimeCap Fund (historically a great managed fund), 5% Dividend Appreciate Index, 5% Real Estate Index and 7.5% to Mid-Cap Index and 7.5% Small-Cap Index.
this skews us toward Value and Mid/Small Cap and obviously has overlap in the larger cap space. A Total Market Fund will accomplish the same without much effort however I like to actually see how different components change as compared to what the talking heads say.
Those who ask “what can I do” must have concluded that action is needed. I came from a different perspective “should I do anything?”
For my millennial children or legacy accounts, I would ignore such notice like the Fidelity letter. A thirty-year investment horizon will smooth out these noisy signals. There has never been a shortage of market correction predictions—past or present—yet the long-term trend of the S&P 500 remains undefeated.
For those who might be affected by sequence of return risk, the big picture remains: market volatility is built-in. We see 5% or more market swings every year, and they are not predictable. Hardly anyone could see the DeepSeek moment in January 2025 when the tech stocks plunged then rebounded.
It’s the suitable asset allocation all the way. The urge to change means the investor is not a satisficer, but an optimizer. For me, I am not arsing around with my legacy funds. [I learned to speak a new language from Mark 🙂 ]
Well said. For me, the whole point of asset allocation and rebalancing when appropriate, is to remove the need to “do something” in response to headlines or market changes.
“We see 5% or more market swings every year, and they are not predictable.”
I would say a 5% drop in the market is a big nothing burger.
When there is a correction (a 10% drop from the most recent high) it starts to pique my interest and possibly stir me to rebalance to my base allocation. A bear market (a 20% drop) is a definite buy opportunity to the point where I generally increase my equity allocation 5% above its target allocation. Then sell back to my target allocation occurs when a new all time high is reached.
The two instances where I have made a move since establishing the plan were during COVID (I kept buying a few more percentages every 5% drop beyond the bear market level with the last buy within days of the bottom, but in this case sold at every 10% gain from the bottom as I was not sure how long it would be until the market would totally recover from the drop), and the tariff tantrum.
I don’t consider this market timing per se as the buys are such a small percentage. I did not try to wait and predict the bottom of the market then jump in, just try to buy when stocks were continuing to be further discounted.
I will continue this plan in the future as well.
Your ending made me laugh!
I climbed Mont Blanc four years ago with a mountain guide and two companions. My climbing partners had peaked twice before and knew the traditional route well. Our guide took a different, more arduous course, much to the annoyance of the experienced climbers. Questions were asked.
The snow line was lower that season. Avalanche risk was higher. The optimal route was still there—better, faster, and still an attractive option. But the more arduous route was safer with less risk.
I decided not to arse around with the route carrying more risk. I’ve won the game of life and don’t need to take that bet.
The Fidelity letter is the financial equivalent. Different conditions, higher concentration risk in the Mag 7. Same principle, I don’t need that particular route anymore. I’m not faffing around between optimiser and satisfier. As the song goes: I’m doing it my way.
You could invest in an extended market index fund such as FZIPX to complement a fund on this list.
Which is why I hold the Vanguard equivalent – VEXAX. I moved some money from the S&P500 fund to VEXAX when I took last year’s RMD because I needed to rebalance. I don’t have any plans to do anything right now.
FZIPX would be US small cap. I always think of the classic 9-block investment grid. This would be in the middle of the bottom row. The S&P 500 fund on the Fidelity list would be on the top row but skewed to the right, indicative of large cap blend/growth
It’s true that due to market cap weight, index investors are now highly concentrated in the magnificent 7, but that also holds true for US domestic equity as a portion of global equity.
Sure, you can use different strategies to hedge against this concentration risk, but then you are trying to outguess the market, making you no longer a true index investor.
If tilting disqualifies you from being a “true index investor”, then anyone who isn’t in a global all-cap fund isn’t a true index investor either.
“Tilting”–I like that term! Definitely nothing wrong with that in terms on meeting your goals and managing risk. Good points both.
Indeed. Also, so I’m not a “true index investor” … so what? While I fully understand the advantages of indexing, I’m investing to meet my goals, not to adhere to some investing mantra.