How can investors avoid this mistake?

Consider equal-weight index funds or add small- and mid-cap funds to achieve better diversification.

Is VOO a bad investment?

No, VOO remains an excellent choice for U.S. market exposure, but investors should understand its concentration in large caps.

1 Costly Mistake Too Many Investors Make With the Vanguard S&P 500 ETF (VOO)

A report from Motley Fool warns investors about a common costly mistake with the Vanguard S&P 500 ETF (VOO): assuming it offers equal diversification across 500 stocks, while the index is heavily weighted toward the largest companies.

June 7, 2026

2 min read

Source: Motley Fool

According to a report from Motley Fool, many investors make a costly mistake when investing in the Vanguard S&P 500 ETF (ticker: VOO), assuming it provides balanced diversification across 500 major U.S. companies. However, the index is market-cap weighted, meaning larger companies dominate performance.

Details

The VOO ETF tracks the S&P 500, a market-cap-weighted index. This means companies with larger market capitalizations (such as Apple, Microsoft, and NVIDIA) have a greater weight in the index. For example, the top 10 companies may account for over 30% of the fund's value, reducing effective diversification.

Context

This mistake is not new but becomes more significant as the market concentrates in a few large-cap stocks. Investors who believe they are investing in 500 equally weighted stocks may be surprised by concentrated risks.

What This Means for Investors

For investors seeking true diversification, it may be worth considering equal-weight index funds or adding small- and mid-cap funds. However, VOO remains an excellent choice for broad U.S. market exposure, with its limitations understood.

Frequently Asked Questions

The mistake is assuming the fund provides equal diversification across 500 stocks, while it is market-cap weighted, giving larger companies more influence.

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This article was rewritten in Wrqti's editorial style based on information from the original source above. Content is informational only — not investment advice.