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Are you reading TheStreet Pro’s Filthy Rich Animal?
If not, Filthy Rich Animal is TheStreet Pro’s newsletter for newer investors. We’re here to help you get started and to keep you going as you get closer to retirement, and beyond!
Each week we publish two articles, using as little financial jargon as possible. One article will be actionable: It helps you become a better investor. The other is educational: We call it the Question of the Week, which I’m also sharing below.
So, if you’d like content like this sent directly to your email inbox, subscribe here.
In this week’s Filthy Rich Animal Newsletter
Kate looks at what retirement investors are doing wrong and offers smarter ways to keep their portfolios strong during those years that they’re spending and not saving.
Jason examines the S&P 500. You’re probably invested in it through ETFs and mutual funds, but do you know what makes it go up or down in value? Find out in the Question of the Week, a large portion of which is reprinted below.
Read on!
The Question of the Week
Given the number of people who read Filthy Rich Animal each week, there’s a good chance that you and I have never met. However, there’s a good chance that I could still name the stocks that have the biggest sway over your retirement portfolio.
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That’s because most of you probably have the bulk of your stock market holdings in some kind of fund, like an ETF, that invests in the S&P 500.
And that’s not a bad thing! It means that you are probably diversified.
The largest company in the index is Nvidia (NVDA) . It has a market capitalization of around $3.8 trillion. That’s big, especially considering that the total value of every company in the S&P 500 is about $55 trillion.
The S&P 500 pits the big dogs against the little dogs. Bigger stocks like Nvidia hold greater sway over the performance of the index than smaller companies like Norwegian Cruise Line (NCLH) or soup maker Campbell’s Co.
So, when Nvidia gains but the other companies are flat or even fall in price, the S&P 500 is still likely to go higher.
Keep that in mind as you answer this week’s question, which requires you to do a little bit of math. But I promise that the answer won’t be too mathy.
The Question of the Week
If on Monday, Nvidia stock went up by 10% and every other stock in the S&P 500 was unchanged, how much would the S&P 500 Index change by?
- 10%
- 0.02%
- 0.68%
- Dunno
The Answer
Before I give you the answer, here’s what you need to know about the S&P.
As I said above, the 500 companies that make up the index are not weighted equally. The larger ones have a greater weight and, thus, greater impact on the up and down swings in the index.
So, graphics- and AI-chip maker Nvidia, which is one of the largest companies, will have a bigger impact than a smaller company, like Campbell’s. (CPB) In fact, Nvidia, with its $3.8 trillion market cap, is actually 6.8% of the value of the entire S&P 500!
Said another way: Nvidia’s weight in the S&P 500 is 6.8%.
So, when Nvidia goes up by 10% in a day, it adds 0.68% to the value of the S&P 500.
I discuss this in much more detail over on Filthy Rich Animal in: Question of the Week: The S&P 500 Pits the Big Dogs Against the Little Dogs
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