The S&P 500 index contains about 80% of the total market capitalization of U.S. equities. During these years, 2025 in particular, it has performed extraordinarily well. Right now, their focus has shifted toward warning investors to diversify their portfolios. This recommendation stems from the fact that the index’s 10 largest holdings represent around 40% of its value. This high level of concentration serves as a potential red flag for an over-reliance on a narrow band of stocks.
Similar bullish pressure returned to the S&P 500 index in Q2 2025, rallying sharply from its gains in April 2025. Earnings exploded all the way to an increase of 10% over last year. Profits and margins widened across the index and within the 493 companies in the index who reported a profit growth of 3%. A narrow set of high-flying technology stocks —dubbed the “Magnificent Seven”— accounts for almost all this growth. This collective force of innovation includes industry titans such as Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. Added together, these companies accounted for 26% of the S&P 500’s total earnings growth.
John Mullen, managing director and president at Parsons Capital Management, hit on one of the main points. Today’s investments in the S&P 500 are literally a different animal than those made just ten years ago. “If you’re buying the S&P, to a large extent, you’re buying these 10 names and, even more so, you’re buying tech and AI,” he stated. This high concentration is concerning especially for investors who could be unaware of the index’s underlying composition.
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, echoed these sentiments, suggesting that many investors unknowingly adopt a long-term buy-and-hold strategy with their S&P 500 investments. “Investors may put the S&P 500 in their 401(k) and not look at it for 30 years,” she noted. She cautions that this method might not be very wise anymore in today’s market environment.
Read further here from Shalett on why an equal-weight index might be the simplest way for investors looking for diversification to get it. The key is, she emphasized, to get into the mid-cap and small-cap stocks. She stressed the importance of broad indices, such as the Russell 1000, which includes the largest 1,000 stocks of the Russell 3000 index.
Our number one piece of advice to everyone, whether they’re measuring progress over one year or three years is simple: Don’t take the set-it-and-forget-it route. Above all, Shalett stressed that betting on the S&P 500 is the wrong approach. This premise is indicative of a larger trend among financial professionals, who increasingly understand that diversification is key to thriving in the highly variable market conditions we see today.
Warren Buffett’s Berkshire Hathaway has been all over the news lately. In June, they crossed the Rubicon of technological dominance by acquiring their own $1.6 billion stake in health insurance behemoth UnitedHealth. This strategic decision further underscores Berkshire’s unique position. Today, it’s the lone top ten company in the S&P 500 not devoted to technology or artificial intelligence.
Generative AI is an incredibly powerful new tool. Shalett cautions that today’s stock prices may fully reflect its value. “For the top 10 company names in the market, the potential for generative AI is in the ‘sixth or seventh inning of being fully priced,’” she explained.
The runaway success of the S&P 500 keeps winning over the world’s individual and institutional investors. But today as market conditions change, and risks of concentration continue to increase, financial experts are calling attention to the need for diversification within investment strategies.