By Tim Russell, CFP®, President & Wealth Manager at Life Financial Group
Originally shared on the Life in the Markets podcast — 12/1/2025
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*Note: you will get the most out of this market update by watching the video above*
Today is Monday, December 1, 2025, and we have a special episode of the Life in the Markets podcast. I want to dig into one of the hottest investment trends of the past 20 years: passive index fund investing.
The three largest ETFs in the world (VOO, IVV, and SPY) are all built on the S&P 500. Together, investors have poured more than $2.2 trillion into these funds.
There’s a reason they’re so popular. ETFs offer diversification, low costs, and tax efficiency. And for years, the S&P 500 has been incredibly difficult to beat. In many ways, investing in an S&P 500 ETF is simply a way of accepting what the market gives you.
But today, I want to challenge one of the central assumptions behind S&P 500 investing:
Is it really diversified?
The S&P 500 Diversification Myth
Yes, the index includes about 500 companies (technically 503). At first glance, that sounds like broad diversification. But here’s what many investors don’t realize:
The S&P 500 is not equally weighted. It’s market-cap weighted, which means the biggest companies dominate the index.
As a result:
- Nearly 40% of the entire S&P 500 is concentrated in just 10 companies.
- Only a decade ago, those same 10 companies made up just 17% of the index.
This is one of the most dramatic shifts in index composition in modern market history.
Who Are the Big Ten?
The top 10 companies today are:
NVIDIA, Apple, Microsoft, Alphabet, Amazon, Broadcom, Meta, Tesla, Berkshire Hathaway, and Eli Lilly.
A few realities about this group:
-
These are world-class, profitable companies.
This is not the Dot-Com bubble. These firms produce real earnings and real value. -
Most are deeply tied to artificial intelligence.
Whether building the hardware, providing cloud infrastructure, or integrating AI into their platforms, AI has been the dominant driver of their recent explosive performance. -
They are expensive.
Their average P/E ratio is around 30, meaning investors are paying 30 years’ worth of earnings for each share.
Meanwhile, the other 493 companies in the S&P 500 trade at just 19x earnings.
This level of concentration plus elevated valuations equals risk that most investors don’t realize they’re taking.
Why This Matters
One of the easiest mistakes investors make is assuming that strong performance equals low risk. The opposite is often true.
If AI hype slows… if earnings disappoint… or if investors rotate away from mega-cap stocks… S&P 500 investors could face sharper downturns than they expect.
In other words:
The S&P 500 may not be as “safe” or “diversified” as people believe.
What We’re Doing About It
For many of our clients, we’ve already reduced exposure to these top 10 mega-caps through our Biblically Responsible Investment (BRI) portfolios.
These portfolios naturally avoid companies involved in alcohol, tobacco, pornography, abortion, casinos, and similar industries. Because the largest tech companies often fail certain screens, these BRI models typically carry less exposure to the AI-driven mega-cap concentration dominating the S&P 500.
If you’re already using a BRI portfolio, you may already have a built-in hedge against S&P 500 over-concentration. If not, now is a good time to speak with your advisor about whether this approach fits your investment strategy and risk profile.
Stay Connected
Have questions or topics you’d like us to cover in a future episode? Email us at contact@thelifegroup.org with “Life in the Markets” in the subject line.
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Disclaimer: The topics discussed here are for informational purposes only and do not constitute specific investment advice. Investing involves risks, including potential loss of principal. Past performance does not guarantee future results. Securities and advisory services offered through Geneos Wealth Management, member FINRA/SIPC.
