🎬 Watch the Full Breakdown
Why This Matters
Most people think buying an ETF like SPY = instant diversification. But here’s the catch: just 12 companies make up nearly 40% of the S&P 500. That’s concentration risk hiding behind a “broad” index.
When you understand how ETFs are built — their weighting, valuation, dividends, and growth — you realize some are less balanced than they look.
📊 Dad’s Analysis (Boomer Logic)
“I treat ETFs the same way I treat individual stocks:
Valuation: Is the P/E ratio reasonable?
Growth: Are earnings actually increasing?
Dividends: Am I being paid to hold it?
Weighting: Are a few companies doing all the work?”
“That’s where Buffett’s 15x earnings rule comes in. If the companies inside the ETF are overpriced compared to their growth, the whole ETF gets expensive too.” — Steve
🏢 Examples: SPY, JEPI, and VTI
SPY (S&P 500 ETF): Marketed as 500 companies, but top-heavy with Apple, Nvidia, and Microsoft. Own SPY, and you’re basically betting on a dozen giants.
JEPI (Income ETF): Gives up some upside in exchange for consistent income through covered calls. Attractive if you want yield today.
VTI (Total Market): A “boring” fund that owns nearly everything. Low cost, broad exposure, and surprisingly resilient over time.
📊 Dan’s Analysis (Millennial Logic)
“ETFs aren’t magic. They’re just baskets. If the basket is stuffed with overpriced apples (pun intended), you’re still paying too much.
That’s why ‘boring’ funds like VTI or REITs with 4% dividends might actually be the new sexy. They don’t make headlines, but they quietly pay you while you sleep.”
📌 Key Takeaways
Don’t buy ETFs by name alone — check what’s inside.
Overpriced stocks = overpriced ETF.
Income-focused funds like JEPI can add balance.
“Boring” often wins: sleep-at-night investing beats hype.
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This was the full breakdown of how we evaluate ETFs.
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⚠️ Not financial advice. Education & community only.
✅ Our Takeaway
Rexford Industrial is a strong REIT for investors seeking:
Consistent dividends
Long-term property appreciation in a scarce market
Low debt and strong management
It’s not a moonshot. It’s a portfolio stabilizer.
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Cleaned Transcript
Dan:
Welcome to MBMC — Millennial & Boomer Money Concepts. Today, Dad’s going to walk us through how to actually evaluate and pick a stock. Honestly, that’s just as important, if not more, than the actual stock pick. Teach a man to fish, right?
Steve:
Right… unless he gets food poisoning.
Dan:
Depends where you fish. Anyway — welcome back. If you’re new, this is MBMC, where a Millennial (me) and a Boomer (my dad) go over everything we agree on, disagree on, and debate — money concepts, investing, side hustles, and more. The goal is simple: give you clarity and confidence when it comes to money.
Steve:
Probably the most broadly held investment out there is the S&P 500. Most 401ks, brokerages, and mutual funds pour money into it. The most popular ticker is SPY. Let’s break down what that actually means.
Steve:
The S&P takes the top 500 companies in the U.S. by market capitalization. If you invest $1 billion, that money gets allocated proportionally by company size. Bigger companies like Nvidia or Microsoft get far more weight than Walmart or smaller firms.
Dan:
Okay Dad, explain “market cap.”
Steve:
Market capitalization is just stock price multiplied by the number of shares outstanding. If Nvidia trades at $173 and has a million shares (simplified example), that’s its market cap. If the stock goes up a dollar, the market cap increases accordingly. When you hear “billion-dollar company,” that’s all it means — price times shares.
Steve:
As of late August, Nvidia makes up 7.3% of the S&P 500. Microsoft is 6.5%, Apple nearly 6%, Amazon 4%. Add up the top 12 companies — they’re about 40% of the index. The other 488 companies combined make up 60%. That’s a lot of concentration risk in just a dozen names.
Dan:
What about the Dow? Didn’t that used to be “the” index?
Steve:
The Dow Jones goes back to the 1800s. It only tracks 30 companies and is weighted differently, which can get weird. With computers, the S&P 500 became the more useful, broader measure. The Dow isn’t dead, but the S&P is far more representative.
Steve:
When evaluating, you can’t just look at the ticker name. You need to dig into fundamentals: price-to-earnings ratio (P/E), historical averages, growth rates, and dividend yield. Buffett’s rule of thumb is to pay no more than 15x earnings. If a company earns $1 per share, you shouldn’t pay more than $15 for it — unless growth justifies more.
Steve:
Take Nvidia. Its P/E is 46 — high. But its 10-year growth rate has been 58%. That’s why the market pays up. Microsoft trades at 36.6 P/E with only 18% growth. By Buffett’s lens, that’s overpriced. Apple at 31 P/E with 14% growth? Also expensive. Amazon’s a little more reasonable at 36 P/E with 44% growth. Tesla? A P/E of 180 with 23% growth — way overpriced.
Dan:
So basically most of the top 12 are overpriced.
Steve:
Exactly. By my evaluation, seven of them are flat-out overvalued, a few are fairly valued, and none are bargains. That’s the danger of buying the S&P right now — you’re paying high multiples because the giants are expensive.
Steve:
In aggregate, the S&P trades at 24x earnings, with 10% growth. Buffett would want 15x for that. Historically, the market has averaged 21x. So right now, it’s stretched. To revert to average, the index would have to drop about 14%. To hit Buffett’s target, closer to 40%.
Dan:
Okay, but what about dividends?
Steve:
Dividends in the S&P are weak. JP Morgan is around 2%. Walmart, 1%. Most of the big techs pay close to nothing. My personal portfolio yields 4–5%. That’s why I prefer dividend stocks or REITs — they give you cash flow even if the market falls.
Steve:
Let’s talk ETFs more broadly. SPY is cheap — 0.2% expense ratio — but it’s mechanical. Managed ETFs like JEPI cost more (~0.35%) but actively screen companies and use strategies like covered calls to boost income. That gives investors steady cash flow but sacrifices some upside.
Dan:
And that’s where I bought some JEPI — the “boring but steady” play.
Steve:
Exactly. JEPI has done well, and even with fees, the performance justifies it. Then there’s VTI — Vanguard’s Total Market ETF. It owns virtually everything. Expense ratio 0.03%. Growth over the last decade? 13–15% annually. Simple, broad, boring — but effective.
Steve:
I also like certain REITs, like Camden Property Trust. Dividend ~4%, stable earnings, strong balance sheet, A+ credit rating. It’s not sexy like Nvidia or Tesla, but it’s consistent. Long-term, I expect 10% annual returns between growth and dividends. That’s sleep-at-night investing.
Dan:
So to recap: look at P/E, growth, yield, and sector. Avoid chasing hype. And don’t assume buying SPY is true diversification — check what’s inside.
Steve:
Exactly. And remember — we’re not financial advisors. This is for education only. Join the MBMC Community if you want to keep the conversation going.
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