It's deeply ironic that investors are concerned about the diversification of an index with 500 stocks. Traditionally, 20 to 30 individual stocks provided ample protection against company-specific risk. Today, an estimated 40% to 50% of the S&P 500's market value sits in companies tied to a single theme: AI. Diversification only works if your holdings would fall for different reasons. Bizarrely, this is how 500 stocks can be considered riskier than 30.

We've seen this story before. The dot-com bubble involved similar levels of index concentration, and the aftermath should give us pause. After its March 2000 peak, the S&P 500 barely surpassed the old high in 2007 before crashing again, and didn't sustain a move higher until March 2013. Concentration risk is inherent to cap-weighted indices. Notably, investing in an equal amount in each S&P 500 company would have avoided much of the decline and achieved new highs years sooner. In fact, S&P began publishing an equal weighted version of the index in 2003.

No pure stock strategy fully escapes a market crash. The most consequential decision for anyone approaching retirement is the split between stocks and bonds. Because most people know stocks far better than bonds, that's where an investment advisor can prove invaluable. By combining a bond allocation with disciplined rebalancing and value investing, an advisor can construct a portfolio to withstand volatility to protect a client's retirement.

AI concentration estimate sources:
-- https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/smothering-heights-amv.pdf
-- https://www.axios.com/2026/02/20/ai-goldman-sachs-stocks-index
-- https://www.rbcwealthmanagement.com/en-us/insights/the-great-narrowing-sp-500-concentration
-- https://finance.yahoo.com/markets/stocks/articles/ai-swallows-wall-street-stocks-094052523.html

S&P Equal Weighted sources:
-- https://www.spglobal.com/spdji/en/documents/research/research-more-equal-than-others-20-years-of-the-sp-500-equal-weight-index.pdf