Insights
How concentrated is the S&P 500?
The S&P 500 is currently extremely concentrated, with the top ten companies representing about 40% of its total market capitalization—a historic high that far surpasses previous peaks like those during the dot-com bubble. This means that the performance of the index is heavily dependent on a handful of tech mega-caps, including the so-called "Magnificent Seven," which collectively account for more than 30% of the index by market weight.[1][3][4][5][6]
### Current Concentration Levels
- As of late 2025, the top ten stocks in the S&P 500 comprise approximately 40% of the index's market cap, compared to less than 30% at the height of the dot-com bubble in 2000.[2][4][5][7]
- The top five companies, all major technology firms, now make up nearly 30% of the index.[6]
- Altogether, just ten stocks dominate as much as $19 trillion in market value, representing a historic 42% concentration at the most recent peak.[8][10]
### Impact and Risk
- Market returns are increasingly driven by this small group: the top 10 contributed 54% of total S&P 500 returns over the last few years.[1]
- Investors seeking broad diversification through the S&P 500 are, in reality, making a concentrated bet on a handful of tech-related giants.[3][4]
- While these companies have strong fundamentals and high profit margins, the risk profile for index investors is now far less diversified than it has been historically.[4][9]
An over-concentrated stock market carries significant risk because returns and volatility become dominated by a small set of companies, exposing investors to higher downside if those stocks fall out of favor or face unexpected shocks.[1][2][3]
### Key Risks of Over-Concentration
- **Higher Volatility**: Market indices like the S&P 500 are now heavily weighted toward the largest stocks, with the top 10 comprising about 40% of market capitalization, an unusually high level historically. This means if just a few of these leaders perform poorly, the whole market can drop sharply.[4][7][1]
- **Idiosyncratic Risk**: Concentrated portfolios are much more susceptible to risks unique to specific companies, such as regulatory changes, competitive pressures, or management issues. These risks are uncompensated and could result in catastrophic losses, as history saw with Enron, Lehman Brothers, or Kodak.[3][5][8]
- **Underperformance**: Most stocks eventually fail to outperform their benchmark over longer periods, even if they lead for a time. Over-concentration leaves investors exposed if market leadership shifts or innovation arises elsewhere.[6][3][4]
- **Missed Opportunities**: By focusing too much on current winners, investors may fail to participate in gains from the next era of leading companies, reducing diversification and long-term growth.[3]
- **Career and Income Risk**: If an individual is overly concentrated in their employer's stock, negative events can impact both their job and their net worth simultaneously.[7]
- **Reduced Compounded Growth**: The higher volatility in concentrated positions often drags down long-term compounded returns compared to diversified portfolios.[2][9]
### Practical Implications for Investors
- Investors may not realize just how much their portfolios have become concentrated due to overlapping fund holdings and persistent growth in a few stocks.[1]
- The decision to stay concentrated often stems from behavioral biases, low tax bases, or emotional attachment, but the overwhelming evidence supports diversification for risk reduction.[5][10]
In summary, over-concentration amplifies the risks associated with downturns, structural changes in industries, and company-specific events, often leading to worse long-term outcomes than diversified investing.[2][5][1][3]
Sources
[1] The Stock Market Is Ultraconcentrated, and It Could Get Worse ... https://www.morningstar.com/markets/stock-market-is-ultraconcentrated-it-could-get-worse-heres-how-manage-risks-2
[2] Acknowledging the Risks of Concentrated Stock Positions | KAR https://kayne.com/insights/managing-concentrated-stock-positions/
[3] Concentrated Stock Positions: Risk and Tax Consequences https://www.fragassoadvisors.com/concentrated-stock-positions-risk-and-tax-consequences/
[4] Diversify Concentrated Stock Positions: A Guide | Morgan Stanley https://www.morganstanley.com/articles/diversify-risks-concentrated-positions
[5] [PDF] THE RISK OF HOLDING CONCENTRATED STOCK | Northern Trust https://cdn.northerntrust.com/pws/nt/documents/wealth-management/concentrated-stock.pdf
[6] Turn concentrated stock risk into potential tax-savings reward https://am.jpmorgan.com/us/en/asset-management/adv/investment-strategies/separately-managed-accounts/tax-managed-solutions/concentrated-stock-risk/
[7] Why Overconcentration is Risky—and How to Avoid It https://www.schwab.com/learn/story/overconcentration-equity-compensation
[8] Four Potential Solutions to Concentrated Stock Positions https://www.parametricportfolio.com/blog/four-potential-solutions-to-concentrated-stock-positions
[9] [PDF] The Hidden Cost of Holding a Concentrated Position - Baird Wealth https://www.bairdwealth.com/siteassets/pdfs/hidden-cost-holding-concentrated-position.pdf
[10] [PDF] Managing the Risks of a Concentrated Position—Overview https://www.jpmorgan.com/content/dam/jpm/wealth-management/documents/managing-concentrated-positions-overview.pdf
### Historical Comparison
- Year | Top 10 Weight (%) | Notable Periods |
- ---------------|-------------------|------------------------|
- 1990 | ~20% | Pre-tech era[5] |
- 2000 (Dot-com)| ~27-30% | Tech bubble peak[2][5]|
- 2025 | ~40-42% | AI/Tech driven market[1][4][5][8]|
The S&P 500 is more concentrated now than at any time in at least the past 30 years, meaning investors are less shielded from risks particular to a small group of dominant firms.[5][7][2][1]
Sources
[1] The S&P 500 is 'extremely concentrated,' Apollo economist says ... https://finance.yahoo.com/news/p-500-extremely-concentrated-apollo-173559192.html
[2] Is the S&P 500 too concentrated? | Goldman Sachs https://www.goldmansachs.com/insights/articles/is-the-sp-too-concentrated
[3] Extreme Concentration in the S&P 500 - Apollo Academy https://www.apolloacademy.com/extreme-concentration-in-the-sp-500-2/
[4] Is there a rising concentration risk in the S&P 500? https://www.guinnessgi.com/insights/sp-500-concentration-risk
[5] Visualized: The Rising Concentration of the S&P 500 https://www.visualcapitalist.com/sp/visualized-the-rising-concentration-of-the-sp-500-tema01/
[6] The S&P 500 is more concentrated with AI than ever. Here's ... - CNBC https://www.cnbc.com/2025/10/22/your-portfolio-may-be-more-tech-heavy-than-you-think.html
[7] The S&P 500 Concentration - Osborne Partners Capital Management https://osbornepartners.com/the-sp500-concentration/
[8] S&P 500 now a 10-stock show — market concentration hits record ... https://economictimes.com/news/international/us/sp-500-now-a-10-stock-show-market-concentration-hits-record-42-smashing-dot-com-peak/articleshow/125113020.cms
[9] S&P 500 Concentration Is Worrying Me More And More (SPX) https://seekingalpha.com/article/4840180-sp500-concentration-is-worrying-me-more-and-more
[10] The Growing Risk Behind Market Concentration - TD Bank https://www.td.com/ca/en/asset-management/insights/blog/growing-risk-behind-market-concentration