Tesla’s Inclusion in the S&P 500 Index
This week Tesla was added to the S&P 500 Index, which serves as a widely used benchmark for passive investing and as a simplified proxy the performance of the broader U.S. stock market. Tesla’s nascent inclusion in the index is a reminder to investors to be aware of the characteristics of the companies that comprise an index, and to account for the accompanying risks and opportunities that those companies introduce. Tesla stock, for example, is relatively expensive based on price-to-earnings and price-to-revenue metrics, and has significant exposure to state and federal regulations and policies regarding energy and auto manufacturing. These characteristics aren’t necessarily good or bad, but being aware of them gives investors the information necessary to effectively allocate a well-diversified portfolio that is positioned for appropriate risk-adjusted expected returns.
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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management
