S&P 500’s Tech-Heavy Top Is a Feature, Not a Bug
Even though just five stocks, led by Apple and Microsoft, account for 24% of the index, the concentration helps stabilize the risk of investing over time.
The S&P 500 is so concentrated because a few companies are making a lot more money than everyone else.
Photographer: Timothy A. Clary/AFP/Getty Images
The US stock market is unusually top heavy. Just two stocks, Apple Inc. and Microsoft Corp., account for nearly 15% of the S&P 500 Index. Add smaller but still formidable giants Amazon.com Inc., Alphabet Inc. and Nvidia Corp., and that number climbs to 24%. That’s the highest concentration in the index’s top five holdings since at least 1990.
One reason investors buy the broad market is to diversify the risk of owning too few stocks. But with five of them dominating the S&P 500, some investors may be wondering if buying a broad market index is too dicey. The short answer is that shifts in the index’s concentration don’t necessarily make it any more or less risky. In fact, it’s more likely the opposite — that those changes help stabilize the risk of investing over time.