“At this point, the S&P 500 looks less like a 500-stock index and more like a high-tech holding company with a side order of everything else.”
Every decade tells a story and the one told today by the S&P 500’s top 10 holdings might as well be a rerun – on steroids.
In 1985, the 10 largest U.S. companies represented roughly 20% of the index. By 1995, the figure was still below 20%. Fast forward to 2025 and the top 10 names now make up nearly 40% of the market’s total capitalization. What was once a mosaic of industries — energy, manufacturing, finance, consumer goods — has evolved into an increasingly narrow portrait dominated by technology and its orbiting satellites. Apple and Microsoft now sit atop the index like twin suns, while Nvidia’s meteoric rise has redrawn the constellation entirely.
This remarkable concentration – dominated by the current “Magnificent 7” (Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft and Nvidia) – is both a testament to innovation and a symptom of imbalance. The efficiencies of scale, network effects, and relentless capital flows have made these firms extraordinarily profitable — and remarkably dominant. Yet when the same few stocks are responsible for the majority of market returns, the so-called “broad market” starts behaving less like a diversified ecosystem and more like a single crowded trade wearing a “diversified” disguise.
Here is where the recent interview with CNBC by Forza’s Founder and Principal, Michael DeMassa, CFA, CFP, AEP becomes instructive:
“The S&P 500 is broken,” he stated, highlighting that many investors assume the index delivers diversification when, in fact — because it’s market-capitalization-weighted and dominated by a handful of mega-caps — it may amplify rather than mitigate concentration risk.
In Michael’s words: “Because the S&P 500 is market-cap weighted … performance is heavily influenced by a few large companies — particularly in the technology sector — which can amplify volatility across the entire index.” [Link to full CNBC article]
Diversification, in theory, is the market’s self-correcting mechanism. It’s what cushions investors when one sector underperforms.
But when capital pours into the same familiar winners — often through passive index funds — diversification quietly erodes. The market begins to echo itself. Every new dollar chasing “the index” increasingly finds its way into the same eight or 10 names, amplifying the very concentration one might assume it’s avoiding.
At this point, the S&P 500 looks less like a 500-stock index and more like a high-tech holding company with a side order of everything else. And while these dominant firms have earned their place through genuine innovation, history reminds us that leadership rarely lasts forever. The top 10 list from 1985 — filled with names like IBM, GE, Exxon and Kodak — reads today like a corporate fossil record. Each was once viewed as indispensable … right up until it wasn’t.
Rightfully, many investors confuse owning the index with being diversified. But if your portfolio mirrors the index today, you may just be surfing the same narrow wave as everyone else, thinking you’re in open water.
For long-term investors, this is where humility meets prudence. The challenge isn’t predicting which giants might stumble — it’s recognizing that concentration itself is the risk. When markets forget how to diversify, investors need to remember why they should.
At Forza, we have strict limits on risk control measures such as keeping individual common stock weights to less than 5% of total equity and capping sector exposure to less than 20%.
In an age when the S&P 500 increasingly resembles a “Mag 7” portfolio rather than a diversified index, true diversification may now require venturing beyond what everyone already owns and into areas of the market that are less celebrated, less crowded and, in the long run, potentially more rewarding.
Sometimes the smartest move isn’t chasing the market’s latest “feature” — it’s quietly fixing the glitch.