Indexes are great, but...

It's full of fat and you're giving the companies maintaining the index ETFs free money to do nothing. It's full of useless duplicate companies that only exist to drag down the entire group. Just like the worst performers of a classroom or the average joes that do nothing but just bring the standard down, historically we were always limited by time or even ability to conduct trades to be stuck with whatever XIC.TO or ZSP or whatever limited us to do.

I recently spent a good few days experimenting with custom indexing on Tilt as well as Questrade, which uses Tilt to my chagrin, on this very principle. What if I could take the S&P 500, remove all the crap that drags everything down, get rid of industries I despise, and merge it with things that I think should be in there for either stability purposes or just because custom indexing allows us to do such zany things with minimal effort. So we can keep the benefits of passive, simple investing in indexes for people without time to stare at screens all day... but optimize better.

So here's what I did.

1. Start with the S&P 500. 2. Remove most of the immediate, obvious garbage down to 81 core large-cap holdings. 3. Add a couple of Canadian blue chip options to add some stability in case of any shenanigans from the states. 4. Strip this list to the bare essentials even further by keeping only the best-in-class options for every exposure, cutting every redundant company (why would you want to invest in RBC and TD and Scotiabank and etc. etc., just choose a winner), remove options where the price simply got too expensive for what it was doing, remove companies I simply have no comprehension of how they work, and some other random personal stuff just because I could and it's my custom index so I can do what I want. 5. End up with a custom index portfolio, executing live on Questtrade, simple enough for any random person to follow (including me) since it's only 40 holdings.

Here's the nitty gritty:

Technology (11): NVDA, MSFT, AAPL, MU, ORCL, AMAT, TXN, CSCO, UBER, NFLX, META

Financials (7): JPM, BNS, TD, V, GS, BRK.B, MFC

Communications (1): GOOGL

Consumer Cyclical (3): AMZN, HD, MCD

Consumer Defensive (4): COST, WMT, PG, PEP

Healthcare (3): JNJ, PFE, TMO

Energy (3): XOM, ENB, CNQ

Industrials (5): CAT, DE, GEV, CNI, SPCX

Materials (2): LIN, AEM

Utilities (1): FTS

The rules I applied:

One name per exposure. Where the original held 3 chip-equipment makers or 5 Canadian banks, I kept the single best and cut the rest.

Cut the overpriced. Removed AMD (183x P/E), AVGO (67x), SHOP (120x), and other names where you pay a premium for a #2 player.

Cut the weak. Dropped Intel (no earnings, no dividend), IBM (slow-growth, heavy debt), Iron Mountain (134x P/E, 6.7x leverage), and Lowe's (redundant with Home Depot).

Value the cheaper equivalents. Swapped Royal Bank for Scotiabank — higher yield (3.6% vs 2.2%), lower P/E, lower price-to-book.

Add conviction bets. Added SpaceX for satellite-internet and launch exposure; dropped Tesla on Chinese EV competition concerns.

No weapons manufacturers, and no BlackRock — whose ETF business is the antithesis of custom indexing.

The results:

Metric Trimmed (40) Original (81) S&P 500

1Y return +23.5% +22.0% +20.7%

5Y return +102.6% +88.5%* +80.7%

5Y outperformance vs S&P +21.9% — —

Volatility 14.5% ~14% ~15.5%

Max drawdown -20.8% ~-22% ~-24%

Dividend yield 1.22% ~1.2% ~1.25%

The trimmed 40-name version outperformed both the original index and the S&P 500 over 1Y and 5Y — with lower volatility and a shallower drawdown than the benchmark. Concentrating into best-in-class names removed the drag from weaker duplicates.

Why it works

Built on a commission-free custom-index platform with fractional shares, this runs at 0% MER vs. ~0.09% for an S&P 500 ETF. Unlike an ETF, every holding reflects a deliberate choice rather than a market-cap default. It had markedly improved performance by every single metric, reduced risk, and the cost was slightly less dividends, completely offset by not having to pay the MER.

There is probably still room for improvement but you cannot tell me this is not the future of passive investing. If you're an index trader, there is fundamentally no reason not to do this other than lack of understanding.