1 index fund to buy before it rises 184%, according to some analysts of Wall Street

Goldman Sachs The strategists set their goal in 2025 for the S&P 500 (^ GSPC -0.50%)) At 6,500. This implies around 6% up in the remaining months of the year, compared to its current level of 6,115, and 11% of the increase compared to the place where the index has started in January. But their perspectives are quite dark beyond this point.

Goldman Sachs recently updated his long -term forecasts to take into account the historically expensive assessment of the S&P 500 and the almost unprecedented concentration. The strategists expect the index to return 3% per year in the next decade, which is much worse than 13% per year in the last decade.

However, they also proposed a solution: investors can bypass the concentration problem by buying an equal S&P 500 index fund as the ETF Investo S&P 500 (RSP -0.82%)). Goldman Sachs thinks that equal weight fund could surpass the S&P 500 up to 8 percentage points per year, involving a total return of 184% in the next decade.

Here is what investors should know.

The FNB Investco S&P 500 Equal Working eliminates the risk of concentration

The traditional S&P 500 is balanced by market capitalization. This means that more precious companies have an impact on its performance to greater extent than less precious companies. As an example, the “Magnificent Seven” represent more than a third of the S&P 500 by weighted exhibition. This means that the ups and downs in the index are strongly influenced by these seven companies.

The ETF Investo S&P 500 at the same time follows the 500 companies that a traditional Indication fund of S&P 500, but the fund is equal (as its name suggests) puts equality emphasized on each action. In terms differently, no company influences the performance of the index fund more than any other company.

The FNB Investco S&P 500 Equal Works has a 0.2%spending ratio, which means that annual costs will total $ 2 on each $ 1,000 invested in the fund.

What investors should know about the long -term prospects of Goldman

As mentioned, Goldman Sachs’ strategists expect the S&P 500 to return 3% per year in the next decade. This dark perspective is based on the historically high assessment and concentration of the index:

• The S&P 500 is negotiated with a price / profits ratio (CAPE) cyclically adjusted.
• The 10 largest S&P 500 companies represent almost 40% of its weighted exhibition. This means that the index is more concentrated today than it has been in the past 100 years.

Goldman’s strategists wrote: “Although high market concentration is not a long -term risk sign, a high concentration is associated with lower yields on longer horizons.” Indeed, it is difficult for any business to maintain high growth in profits over long periods. Thus, the largest S&P 500 companies are forced to see slow growth possibly, and this will be reflected in their prices.

Overall, Goldman is making a convincing argument to have an equal S&P 500 index fund. However, investors should keep in mind some potential problems with the long -term forecasts of the investment bank:

• Artificial intelligence (AI) could increase productivity more than any technology during the last century, which could allow large companies to maintain higher profits that Goldman is providing.
• The composition of the S&P 500 changes frequently. More than a third of the index shares are replaced during the average decade, which makes it difficult to model its performance over long periods.

Therefore, Goldman forecasts can be incorrect. Indeed, the investment bank predicted in 2012 that the S&P 500 would return 8% per year during the next decade, with a possible case of 4% per year and a case of bull of 12% per year . However, the index has returned more than 13% per year during this decade, exceeding the most optimistic forecasts in Goldman.

Passive investors should consider buying stocks from S&P 500 Equal Works ETF invesco as a means of coverage against the concentration historically high in the S&P 500. But having such an index fund is essentially to bet the magnificent seven underperform shares . I am not convinced that it will happen. Thus, I personally retained a larger part of my portfolio in a traditional S&P 500 index fund and individual actions.