The Hidden Risk in S&P 500-Heavy Portfolios

With mega-cap tech stocks dominating market returns, it’s easy for investors to underestimate how concentrated their “diversified” portfolios have become. As I emphasized to ThinkAdvisor, this isn’t just an S&P 500 index issue—so-called “value” indexes and even many ETFs marketed as diversified often sneak in allocations to the Magnificent 7 (like Apple), leaving investors much more exposed than they realize.

That’s why I strongly advocate for a true portfolio x-ray—not just stacking up ETFs or broad funds, but actually peeking under the hood to see where the real risk lies. In my advisory practice, we go well beyond just holding generic index ETFs. We intentionally construct portfolios with individual stocks and review overlap, ensuring that clients aren’t simply buying the same tech giants again and again under different wrappers. It’s a common trap: many investors think they’re better diversified than they are, when in reality they’re concentrated in the same handful of household names.

The next crucial step? Regular, disciplined rebalancing and genuine asset class diversification—across company size, sector, and international boundaries. In today’s market, adding a laundry list of ETFs alone isn’t enough; meaningful diversification now requires looking through your holdings with a skeptical eye, rooting out overlap, and purposefully building exposure to out-of-favor areas and geographies that don’t move in lockstep with U.S. big tech.

Bottom line:

Don’t let a portfolio full of “diverse” ETFs lull you into a false sense of security. As I told ThinkAdvisor, it takes more than a broad fund list to be truly diversified today. Run a real portfolio x-ray, rebalance intentionally, and construct holdings that give you exposure beyond the echo chamber of mega-cap tech. In a top-heavy environment, that’s arguably the most important risk-mitigation move you can make.