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Billionaire Warren Buffett’s recommendation for many buyers has been to purchase a low-cost fund that tracks the S&P 500. However that appears like a dangerous proposition to me proper now.
The index is closely concentrated round a number of very comparable firms. And the remainder of the US financial system doesn’t give me a lot encouragement both.
Focus
Total, the S&P 500’s executed very effectively in recent times. However not each firm’s executed equally effectively — a handful of sturdy performers have offset a lot weaker outcomes elsewhere.
For instance, Microsoft’s revenues grew by round 15% in 2025, whereas Kraft Heinz noticed a 2.5% decline in gross sales. For the index as a complete although, the online impact’s constructive.
Microsoft’s gross sales elevated by $36bn, whereas the drop at Kraft Heinz was lower than $1bn. In different phrases, progress at greater companies offsets lots of smaller companies going backwards.
The difficulty is, it additionally creates danger. If at enterprise like Microsoft falters for any purpose, I don’t suppose there are going to be sufficient Kraft Heinz-like companies to offset this.
The US financial system
One thing comparable is true of the US financial system. Shopper spending – which accounts for round 70% of US GDP – seems to be resilient, however there’s extra occurring beneath the floor.
In actuality, the general resilience is being pushed by sturdy contributions from essentially the most well-off in society. And similar to the index, this has the facility to cowl lots of weak spot elsewhere.
A a end result, the identical danger emerges. If something causes the wealthiest households within the US to rethink their consumption ranges, that is unlikely to be offset by elevated spending elsewhere.
Consequently, I’m cautious of the concept investing in an S&P 500 fund is a good suggestion proper now. However I do suppose there are potential alternatives throughout the index.
Insurance coverage
One inventory I’ve been shopping for not too long ago is Brown & Brown (NYSE:BRO). The inventory’s 37% off its 52-week highs, however I believe there are some sturdy indicators for the underlying enterprise.
The insurance coverage dealer’s been coping with two main points not too long ago: a weak marketplace for insurers and integration prices after a big acquisition weighs on margins.
Each are real challenges, however I anticipate they are going to show to be short-term. So I believe the 2 of them combining to push the inventory to unusually low ranges may very well be an enormous alternative.
Brown & Brown goals to mix the benefits of native data with the financial advantages of scale. In an business I believe might be sturdy, that’s a strong mixture.
Investing technique
One of many issues I need from my Shares and Shares ISA is diversification. And that’s why I’m unwilling to simply ignore US shares even when the S&P 500 as a complete seems to be dangerous.
I believe Brown & Brown may very well be set to profit from a double enhance. A extra useful marketplace for insurers might push gross sales larger whereas decrease integration prices trigger margins to increase.
The corporate’s long-term aggressive place additionally seems to be sturdy to me. That’s why it’s nonetheless on my ‘to-buy’ listing as I search for shares to scoop up throughout a tough time for the S&P 500 and the US financial system.
