https://www.nytimes.com/2026/01/30/business/stock-market-concentration-risk.html
Your ‘Safe’ Stock Funds May Be Riskier Than You Think
The U.S. stock market has become so concentrated that even broad index funds are no longer well diversified, our columnist says.
By Jeff Sommer, The New York Times, Jan. 30, 2026
Even if you have been doing everything right and diversifying your investments as the textbooks suggest, you may be taking greater risk than you realize.
What’s happened is that a handful of companies, like Nvidia, Microsoft, Alphabet and Apple, have been driving stock returns. They, and a handful of other tech giants, including Amazon, Broadcom, Meta and Tesla, have become so valuable that their shares dwarf the rest of the market. …
The market has become so highly concentrated that even the most comprehensive U.S. stock index funds are no longer well diversified. In fact, by a strict legal definition, they now are not diversified at all. If you believed that by buying an index fund that mirrored the entire stock market you were being protected by true diversification, it’s time to re-evaluate this crucial assumption…
Since Nov. 10(FXAIX - Fidelity ® 500 Index Fund | Fidelity Investments), two major index funds, Fidelity 500 and Fidelity Total Market, were operating as “nondiversified funds.”…
The U.S. stock market itself has become so top-heavy that index funds mirroring the overall market are breaching legal thresholds for diversification set by the Securities and Exchange Commission to protect investors… As Vanguard puts it in the prospectus of its Vanguard 500 Stock Index Fund, investors now need to be aware of “nondiversification risk.”… [end quote]
Non-diversification risk can be mitigated by holding an equal-weight index fund instead of a market-weight index fund. That will have slower growth but may mitigate the risk should the bubble pop. Or not, if margin calls cause all stocks to fall together. I don’t know the comparative drawdowns of the funds during market drops.
Wendy