Equal-Weight S&P 500 vs the Regular S&P 500: RSP vs SPY in Every Crash Since 2008

A regular index fund is weighted by market value: a company worth ten times as much gets ten times the weight. An equal-weight fund ignores size and puts about 0.2% in each company, so the largest firm in the index counts for the same as the smallest. Every quarter the fund resets those weights, selling some of what has risen and buying some of what has fallen.

That sounds like a small technical choice, but it changes what you own. Money moves away from the giants, which in recent years has mostly meant away from technology, and toward the smaller companies in the index and toward sectors such as industrials and financials. You hold the same names at very different sizes, so the two funds can behave quite differently.

Over the months the S&P 500 fell from its peak to its bottom in each crash, here is how the equal-weight fund moved, along with the Nasdaq-100 fund QQQ as a rough stand-in for the technology-led giants.

In the 2008 financial crisis the S&P 500 fell about 56% and equal weight about 60%. In the 2020 COVID crash the gap was wider: about 34% for the regular index against about 40% for equal weight. In the late-2018 selloff the two were about level, down about 20% and 21%.

Only in the 2022 bear market did equal weight hold up better, falling about 21% against about 25%. On this record, spreading the money evenly has not been a general shelter. In three of the four crashes it did no better than the regular index, and in two of them it did clearly worse.

The pattern makes sense once you ask which companies led each fall. In 2022, rising interest rates hit the big technology-led names hardest: QQQ fell about 35%. Owning less of them is exactly what equal weight does, so it helped. In 2020 and 2008 the giants held up better than the rest (QQQ fell about 28% and 52%), and an equal-weight fund, holding less of them and more of everything else, fell further than the regular index.

So equal weight protects you against one specific risk: a fall led by the largest companies. It does not protect you against a broad panic, when smaller and more economically sensitive businesses tend to fall further than the giants. The fund did not exist during the dot-com bust, so that crash is not in this test.

A second way to see it: in 2020 and 2022 equal weight moved much more like a mid-cap fund than like the regular S&P 500. The mid-cap fund IJH fell about 42% and 21% in those two crashes, close to equal weight's 40% and 21%. Giving small and large members the same slice is, in large part, a tilt toward smaller companies.

After 2008, equal weight got back to its old price high about 26 months after the bottom, against about 48 months for the regular S&P 500, roughly half the time, even though it had fallen further. Smaller, beaten-down companies rebounded hard from the 2009 low.

After every crash since, it was a little slower: about 6 months against 4 after 2018, 8 against 5 after 2020, and 17 against 15 after 2022. Even after 2022, when it fell less, the regular index got back to its high first, because the giants that fell hardest also rebounded hardest.

The most visible cost is the fee. RSP charges about 0.2% a year, while large regular S&P 500 funds such as VOO and IVV charge about 0.03%. On $100,000 that is about $170 a year more, every year, before anything else. Resetting all those weights each quarter also means more trading inside the fund, a cost that does not appear in the fee.

The less visible cost is what you give up when the giants keep winning. Over most of the years since 2010, the largest companies have pulled ahead, and the regular index has generally beaten equal weight. There have been stretches when equal weight led, and many investors expect the top of the market to shrink again one day, but nobody knows when. The comparison at the top of this guide shows one long period on real data, dividends included.

The useful question is not which index is better, but what a slice of equal weight would do to your mix. Backtest your portfolio as it is and with part of its US stocks moved into an equal-weight fund, then compare the maximum drawdown, the recovery time and the total return over the whole period. Then replay both through 2008, 2020 and 2022 in the stress test, since the answer changes from one crash to the next.

Educational, not advice: whether equal weight belongs in your portfolio depends on your goals, your horizon and everything else you own.