If you own an S&P 500 index fund, and a lot of people now do, you probably think you own 500 companies. You sort of don't.
The S&P 500 is the default way most of us invest, and for good reason. It is cheap, simple, and it has done the job for decades. But "I just buy the index" hides something most people never look at: under the hood, that fund is far more concentrated than the word diversified suggests.
What "market-cap weighted" actually means
The standard S&P 500 is market-cap weighted, which is a fancy way of saying the biggest companies get the most of your money. So the ten largest names alone now make up around 38% of the whole index, getting on for 40%. The other 490 or so share what is left. Put in €100 and roughly €38 goes into just ten companies, most of them the same big technology and AI names.
The largest is Nvidia, the chip maker behind most of the AI boom. On its own it is worth nearly 8% of the entire index, more than whole sectors like energy or property put together. The group people call the Magnificent Seven, the handful of mega-cap tech giants, comes to about a third of it. The market has not been this top-heavy in decades.
Why this matters for your money
When you buy the S&P 500 for safety and to spread your risk, you are making a concentrated bet on a small group of tech leaders. It paid off on the way up. Those names dragged the whole index to record highs. The catch is that the same maths runs in reverse.
If those ten companies had a bad month and fell 20% together, that alone would take the better part of 8% off the whole index, before the other 490 did anything. Nvidia falling 30% on its own would knock more than 2% off the index. That is a lot of supposedly spread-out money riding on very few shares.
None of this means a crash is coming. The rest of the market has actually been pulling its weight more lately, not just the giants. But concentration this high quietly changes what the word diversified means inside your account, and that is worth understanding before you assume the index has you covered.
Why I am personally fine with it
Full honesty: I am fine with this concentration. I like tech and AI, so I have leaned into the tilt rather than away from it. Alongside the S&P 500 I also hold the Nasdaq 100, which is even more concentrated in big tech, plus a few individual tech names I believe in. I run most of my investing through eToro, where my portfolio sits, and the tilt is a deliberate choice. I want that exposure.
The difference is that I am making the bet with my eyes open. That is the whole point of this article. It is the same reason I once sold my ETFs and bought individual stocks: not because concentration is good or bad, but because I wanted to choose it on purpose.
If you want to be more spread out
If you would rather be genuinely diversified, it helps to know the options. They sit on a ladder, from a small adjustment to a deliberate counterweight.
None of this is investment advice, just food for thought. There are plenty of hands-off ways to invest, and if you do go down the ETF route, the broker you use matters for fees and range. I broke down the best brokers for buying ETFs separately. The point is to land on a mix you are actually comfortable holding.
So what should you actually do?
This is not me telling you to sell or switch anything. It is simpler than that. Calling a standard S&P 500 truly diversified is not quite accurate. It is a size-weighted bet that leans heavily on a few big tech names, and once you can see that, you can decide whether it is the bet you actually want.
All I really do about it is know what I own. Before I call any fund diversified, I check how much of it sits in the top ten holdings, which takes about thirty seconds on the fund's own page. If you want to go deeper on building a portfolio that can handle a wobble, I wrote a whole piece on diversification and portfolio strategy.
Owning big tech is a perfectly good bet. Owning it without realising is the part worth fixing. Take two minutes this week and look at what is actually inside your fund. Whatever you choose after that is fine, the point is that you chose it.
Frequently Asked Questions
For most people it is a sensible core holding, but it is worth knowing what you own. The S&P 500 is market-cap weighted, so the ten biggest companies, mostly big tech, make up nearly 40% of it. It is a concentrated bet on US tech leaders more than an even spread across 500 companies.
The top 10 holdings are around 38% of the index, and Nvidia alone is worth close to 8%. The Magnificent Seven, the handful of mega-cap tech names, come to about a third. The market has not been this top-heavy in decades.
It is a version of the index where all 500 companies get the same slice, so a small company counts for as much as Nvidia. You get a much broader spread, but the trade-off is you give up some of the tech-driven growth that has powered the standard market-cap version.
It helps, but many all-world ETFs are still around 60% US and lean on the same big tech names, so it is less of a clean break than it sounds. Some investors add an all-world-excluding-US ETF alongside their S&P 500 to push diversification further. None of this is advice, just options to weigh against what you are comfortable holding.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. When investing, your capital is at risk. You may get back less than you invested. Past performance is not a guarantee of future results.
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