This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Should You Buy This S&P Index Fund in 2011?

BALTIMORE ( Stockpickr) -- While it's not uncommon to think of "the market" as a single unit, that hasn't always been the case. Even though stock market indices such as the S&P 500 and the Dow Jones Industrial Average have existed for decades, they were once more like sentiment indicators than the investible instruments that they are today.

That all changed when Vanguard founder Jack Bogle came to the realization that few mutual fund managers beat the broad market in the long-term. To combat that, in 1975 Bogle created the Vanguard 500 Index Fund (VFINX), the world's first index fund. Unlike traditional actively managed funds, the Vanguard 500 didn't seek to select the best investments in the world -- instead, it exactly mirrored the well-known S&P 500 index.

Although other fund managers thought that that index funds were a poor idea (the Vanguard 500 fund was originally referred to as "Bogle's Folly" and didn't initially raise enough capital even to buy all 500 of the S&P stocks), the result has been transformational to the investment world. Index funds are now one of the most prevalent mutual fund vehicles out there, and Bogle's once-mocked fund rings in as one of the biggest, with nearly $100 billion under management.

Related: 3 Investments That Could Rally in 2011

But times have changed. In 2011, we live in a world where ETFs, active trading strategies and individual stock picking have all gained popularity -- and longer-term investors remain shell-shocked from 2008's broad market selloff. The question remains: Does it make sense to buy S&P index funds in 2011?

Right now, I think that the answer is a resounding "yes" for a few reasons.

Concentrated Exposure to Attractive Assets

While index funds paint with broad strokes, right now index weightings are putting an emphasis on assets that look the most attractive right now. Unlike the price-weighted Dow, the S&P 500 is weighted by market capitalization. That means that larger companies make up a bigger portfolio concentration of the Vanguard 500 than smaller companies. That also means that a handful of dominant industries make up a larger part of the fund.

Right now, energy and industrial materials firms make up nearly a quarter of the fund, an attractive setup given the continuing commodity rally that we're currently in the midst of. Economic rebound performers such as consumer goods and telecom make up another 17%.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,248.73 +91.88 0.54%
S&P 500 2,009.45 +7.88 0.39%
NASDAQ 4,589.8130 +27.6240 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs