I'm very much not an expert, but wouldn't something more diversified than S&P be better? Isn't that the one free lunch?
My money (as a student that's not much) is invested in a fund that tracks the MSCI All Country World Index, which was the most diversified Index fund I could find.
Yes, a more global approach is technically more diversified, but you have to make sure the fund's holdings match the name on the tin (and that the expense ratio isn't too high).
I wouldn't call it a free lunch though. Very much the opposite. You're investing in the global market portfolio in order to avoid a potentially costly lunch (i.e. fees, trading costs, not keeping up with the market return, etc... I've stretched this analogy too far, I know)
Depends on how larger company stocks are doing relative to a broader slice of the market. Same for US vs. various international indexes. Even if you're diversified in a number of different index funds, that doesn't mean you should necessarily be "forced" to invest, for example, in areas of the world that seem to have systemic issues (at least with respect to stock market performance).
With respect to US equities, the S&P 500 and the Russell 4000 have performed fairly similarly over the past 5 years; which has performed better depends on the time period you look at. The NASDAQ has been a little bit higher overall but, of course, it also had a bigger drop if you look at a longer horizon.
The theory is that all known pros and cons are priced in; unless you're a big enough player to move the market, investing a dollar in any one company is as good as investing in any other. This assumes a perfect market and is therefore pretty dumb, but the guys that move the prices are probably better at pricing risk and upside than I am, so I can't take advantage of the gap between theory and practice anyway.
The upside of diversification is that your return simply get closer to the mean as opposed to varying wildly as it would if invested in a single company's stock. You basically get increased predictability at no cost.
Not necessarily -- nearly every company in the S&P is a globally diversified mega-corporation, so you still get global diversification as a result of many of the companies themselves being diversified.
Also, by all accounts the US (and specifically New York) is the financial center of the world. This is why the IRS has such immense power -- they can come after anyone, anywhere because a global bank simply cannot operate without a good relationship with US regulators.
My money (as a student that's not much) is invested in a fund that tracks the MSCI All Country World Index, which was the most diversified Index fund I could find.