THE ISSUE WITH S&P500 INDEX FUNDS

Sin Stocks in the S&P500

One problem with buying S&P500 and Total Stock market index funds- you are also buying Cigarette, Alcohol and other sin stocks.


As I mentioned in my managing-your-money writeup https://financialsombrero.com/managing-your-money-1  - I prefer to manage my own investment portfolio. My core investment strategies are index and dividend investing. 


Dividend Stock Benefits:

One huge benefit for me in buying individual stocks with dividend income focus is the idea that I  can research and select the companies I believe in, buy those shares and enjoy the capital growth and/or dividend income. The receiving of income through stock ownership is a very powerful tool that in my opinion is a very important element of one's financial future. 


S&P500 Benefits:

So much is already written about the benefits and mathematical advantages inherent in the ownership of S&P 500 index funds. The passive investing approach makes a lot of sense to investors. There is one, albeit minor issue with owning these total stock market index funds. This minor issue has not stopped me from regularly buying these funds, but it certainly does give me pause to consider my longer-term view of owning and passing down the value in these index funds to my family. 


500 stocks in the S&P- do you know them all.

I am curious if everyone who buys index funds is aware of the total list of the five hundred stocks they are buying. The lists of companies included in the S&P 500 list are publicly accessible and very easy to find online. I refer to the slickcharts link below:

 

https://www.slickcharts.com/sp500  . 


The list starts with the largest market cap companies, such as Microsoft and Apple, but you scan further down the list to the 40th company you'll find cigarette manufacturer Phillip Morris International. They are a major Tobacco company.


Cigarettes, Alcohol and the Like, 

Now, regardless of your opinions on cigarettes you need to remember this one fact- Even though the indexes are weighted, when you buy one of these low cost index funds, you are buying a fractional percentage of the cigarette make Phillip Morris- it's listed as 40th on the S&P 500 list. The same realization can be reached by checking other companies labeled as sin stocks, tobacco, alcohol, gambling, etc.


Personal Finance Community. 

One thing that continues to impress me in reading and listening to the personal finance community is the emphasis placed on making smart money and life decisions. There is also emphasis on the importance of the environment, spending more quality time with family, and pursuing interests that will help others and generally work to improve the well being of others. It seems to me that the personal finance and FIRE communities would be at odds with owning these types of sin based securities. However, that may just be my general ignorance of the FIRE community itself. 


Let me know what you think. 

Yes, as you can probably read from my posts, I am very new to the personal finance and FIRE community.   The https://financialsombrero.com website was launched just a few months ago. My logical side says that the issue of sin stock ownership has already been covered and is already understood by the people who buy index funds. I am curious to find out if this is true. Feel free to drop me a note via email at: 


money@financialsombrero.com , or 


contact me via twitter at: @financialsombr1 to set me straight on this topic. 



Financial Sombrero



Building Wealth Knowledge Every Day



Note that I am not a financial or legal professional, nor am I licensed to sell securities, or any other financial instruments. Given this statement, I strongly recommend that you consider this blog as entertainment value. Although, I sincerely hope that I can motivate you to learn to build your own financial knowledge and wealth.