Let's say a person was going 100% VTI. How exactly does having \~3500 companies fare out better than having just 500 companies (s&p500) if the top holdings have the most impact? For example, if Apple was going down, how does having \~3500 companies help exactly?
I get why it would be prudent for one to diversify into 500 companies. Because duh, if you have individual stocks, and they perform poorly, you're going to get the full brunt of it! But I don't get the part where you would go even further and diversify into \~3500 companies if the top companies are still going to be ones that have the biggest affect. s&p500 might have a bigger **negative** affect too but as long as you don't panic sell and hold it, it shouldn't be all too bad, no?
I just can't get my head wrapped around this.. Please explain this like I'm five.. or 4 and a half..