The Market Is Up. So Why Are You Nervous?
That unease you can't quite name isn't a failure of discipline. It's usually your instincts noticing something your account statement doesn't show.
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A strange thing happens in good markets: people get more anxious, not less. Balances are up, headlines are constructive, and yet a lot of the conversations I have lately carry more worry than they did two years ago when things looked considerably worse.
If that describes you, the feeling deserves more credit than it usually gets. It is rarely a market forecast. More often it is a quiet recognition that you have made a great deal of money on something you do not fully control — and that you are not entirely sure what you own anymore.
Here is a concrete version of what your nerves may be picking up on. On July 13, 2026, SK Hynix fell more than 15% in a single session — its worst one-day decline on record. Samsung Electronics shed more than 10% over the same stretch. Neither is an American company, and neither is a name most U.S. investors would list among their largest holdings. Yet by July 20, the MSCI Emerging Markets Index was down more than 6% for the month.
That is not really a story about emerging markets. It is a story about concentration — and it is the same story playing out in the S&P 500, in international funds, and quite possibly in the accounts you check on your phone.
What the Nervousness Is Actually About
At the end of 2015, the ten largest companies in the S&P 500 accounted for roughly 19% of the index. By the end of 2025, that figure had reached a record 40.7% — more than doubling in a decade (RBC Wealth Management, FactSet). It has eased modestly in 2026, but remains near the highest level since at least 1972.
Put in practical terms: invest $1 million in an S&P 500 index fund today and roughly $400,000 of it lands in ten companies. The remaining $600,000 spreads across the other 490.
Two details make this more than trivia. First, index weight has outrun earnings — those top ten names carried about 41% of index weight in 2025 while being expected to generate roughly 32% of its earnings, a gap that barely existed a decade ago. Second, the cap-weighted S&P 500 now trades at nearly a 30% premium to its equal-weighted counterpart, up from about 13% just before the pandemic.
None of that is a prediction. It is a description of how much of your equity return now depends on a very small number of decisions made by a very small number of companies. That is a reasonable thing to feel uneasy about, whether or not the market cooperates next quarter.
The Diversification You Thought You Bought Overseas
This is the part that surprises people. Adding an international or emerging markets fund feels like the textbook answer to U.S. concentration. Often, it isn't.
As of April 2026, MSCI measured top-ten concentration across its major indexes as follows: MSCI USA at 37.5%, MSCI Emerging Markets at 32.4%, MSCI ACWI at 23.6%, and MSCI EAFE — developed markets outside the U.S. and Canada — at just 10.9%.
Emerging markets, in other words, are nearly as top-heavy as the U.S. market. And the concentration is in the same theme. MSCI's June 30, 2026 factsheet shows Taiwan Semiconductor at 15.1% of the EM index, Samsung Electronics at 8.2%, and SK Hynix at 7.7%. Three semiconductor companies, roughly 31% of an index that holds more than 1,100 names across 24 countries. Five of the top ten are information technology.
So an investor holding an S&P 500 fund alongside an EM fund has not diversified away from semiconductors and artificial intelligence capital spending. They have doubled down on it in a different currency. That is precisely why a bad week for two Korean memory chipmakers dragged the whole EM index down more than 6% in July.
Developed international is the genuine outlier here. At 10.9% top-ten weight, EAFE is less than a third as concentrated as the U.S. market — which is an argument for it that has nothing to do with forecasting returns.
Trees Don't Grow to the Sky
Research from Franklin Templeton and ClearBridge puts a sharp point on the risk. They looked at every stock that has entered the ten largest companies in the S&P 500 since 1985, and measured how those stocks performed relative to the index before and after they got there.
The pattern is remarkably consistent. Stocks crush the benchmark on the way into the top ten… and then stop.
Source: Franklin Templeton / ClearBridge, “Anatomy of a Recession.” Annualized performance relative to the S&P 500,
1985–present; data as of June 30, 2026. Sources: S&P, FactSet. Past performance is not a guarantee of future results.
The intuition is not complicated. A company earns its way into the top ten by growing faster than almost anything else on earth. To keep beating the index from there, it has to keep doing that at a vastly larger scale, against the law of large numbers, with expectations already priced in. Some manage it. Most don't. Ten years after joining the club, the average member has trailed the index by 5.8% per year.
Owning them is not the mistake. Owning them at 40% of your equity allocation, by accident, is a different matter.
How We Have Been Diversifying Client Portfolios
None of this is news to us, and it is not a change of direction. The goal has never been to abandon the mega-caps as they are extraordinary businesses and they belong in client portfolios. The goal is to make sure they are a position we chose deliberately, at a size we can defend, rather than a position that accumulated quietly because an index said so. Here is where we have been putting that to work.
Dividend payers
Dividend-focused strategies tilt naturally away from the top of the market, because a company paying out a meaningful share of earnings is usually past its hypergrowth phase. That tilt brings different sector exposure into more financials, utilities, health care, staples, industrials and a return stream that comes partly in cash rather than entirely from price appreciation. In a market where a great deal of value now rests on multiples, being paid while you wait has real appeal. Watch for yield traps: the highest yields in the market are often signaling stress rather than generosity.
Small- and mid-cap stocks
Small caps have lagged for years, which is exactly why they now offer something the top of the index does not: valuations set by domestic earnings rather than global AI enthusiasm. They come with more volatility, more balance-sheet sensitivity to interest rates, and a higher share of unprofitable companies, so quality screens matter here more than in large caps. But a small-cap allocation is one of the few equity exposures with almost no overlap with your S&P 500 fund.
International developed markets
As noted above, EAFE's 10.9% top-ten weight makes it structurally the most diversified major equity index available. It also brings currency exposure, a cheaper starting valuation, and a very different sector mix which includes more banks, industrials, and consumer brands, far less software and semiconductor manufacturing. If you are going to add international exposure specifically to reduce concentration, developed markets do more of that work than emerging markets do.
Equal-weight and capped index strategies
If you like the S&P 500 constituent list but not the weighting, equal-weight and capped versions of the index hold the same companies with materially less single-stock risk. This is the lowest-friction change available: same universe, same familiar names, different concentration profile. The trade-off is tracking error, in a year when the mega-caps lead, equal-weight will feel like a mistake, and you have to be willing to sit with that.
Commodities and real assets
Commodities, energy infrastructure, and real assets earn their place less through expected return than through correlation. They tend to behave differently from growth equities, particularly when the pressure on stocks comes from inflation or supply shocks rather than a growth scare. They can be volatile and, in the case of many commodity funds, produce no income at all — so this is generally a modest allocation with a specific job, not a core holding.
Alternative investments
Where it is suitable, we use alternative investments to reach return streams that do not depend on the same handful of companies driving the public equity market. Depending on the client, that can include private credit, private real estate, infrastructure, and hedged or absolute-return strategies. The purpose is not to chase higher returns — it is to own something whose outcome is driven by diƯerent forces, so that a repricing in mega-cap technology is not simultaneously a repricing of the whole portfolio. Alternatives carry their own trade-oƯs: reduced liquidity, longer lock-up periods, higher fees, less transparency, and eligibility requirements that not every client meets. We discuss all of that before anything is allocated, and we size these positions accordingly.
Bonds
With yields at levels not seen for most of the past two decades, high-quality bonds are once again doing the job investors always hoped they would: paying a real return and providing ballast. Concentration risk in equities makes the fixed income sleeve more important, not less — because the scenario you are protecting against is one where a handful of very large stocks reprice at the same time. Laddered maturities, credit quality, and duration matched to when you actually need the money matter more than chasing the last few basis points of yield.
Hedging strategies
For concentrated positions that cannot be sold easily — low-basis stock, restricted shares, an employer position built up over a career — there are tools that reduce risk without triggering a sale. Covered calls generate income and cap upside. Protective puts and collars set a floor at a known cost. Buffered or defined-outcome funds package a similar trade-off inside a fund wrapper. Each involves real costs, tax considerations, and give-up of upside, and none should be used without understanding exactly what you are trading away. Used deliberately, though, they can bridge the gap between “I should reduce this” and “I can't afford the tax bill this year.”
How We Test Whether It Is Working
Any advisor can say the word “diversified.” We would rather measure it. Three pieces of our process are worth explaining, because they are what turn a general concern about concentration into specific decisions in your account.
Risk tolerance, stress-tested through BlackRock's Aladdin
Every plan starts with a documented risk tolerance, not just how you answered a questionnaire, but how much decline you can absorb without abandoning the plan and how much time you have before the money is needed. We then run portfolios through BlackRock's Aladdin risk system to test how they might behave under specific conditions rather than in the abstract: a spike in equity volatility, a meaningful move up or down in interest rates, widening credit spreads, a sharp drawdown concentrated in a single sector, or the repeat of a historical stress episode. The output tells us where the risk is actually coming from which is frequently not where clients assume it is. These are model-based estimates, not forecasts, and no system can predict how markets will behave. But testing a portfolio before a shock is a great deal more useful than explaining it afterward.
Ongoing concentration monitoring
We track concentration deliberately and on a recurring basis, at both the position level and the asset-class level, so that no single investment or category quietly grows into an outsized share of your net worth. That includes look-through analysis — adding up how much of a single company you own across every fund and account, rather than reading each holding in isolation. When a position or a category drifts past where we intend it to be, it goes on the list to address. How we address it depends on your tax situation: redirecting new contributions, rebalancing within set bands, harvesting losses to oƯset gains, using appreciated shares for charitable giving, or trimming over multiple tax years. A concentrated winner is a good problem, but it is still a problem, and it is far easier to manage before a decline than during one.
Monte Carlo analysis
Finally, we use Monte Carlo analysis to test your plan rather than just your portfolio. Instead of assuming a single average return, it runs your actual circumstances; contributions, withdrawals, time horizon, spending goals— through thousands of simulated market paths, including poor sequences that arrive at exactly the wrong time. This reframes risk in the only terms that ultimately matter: not whether you beat an index, but whether the plan still works across a wide range of outcomes. Monte Carlo results are hypothetical and depend on the assumptions used, so they do not guarantee anything. What they do well is show us how much market disruption a plan can absorb and that tells us how much risk you actually need to take.
Taken together, these three tools answer the question behind the nervousness: not “what is the market going to do,” which nobody knows, but “what happens to me if it does something bad,” which is measurable.
What This Looks Like in Practice
- We look through the funds, not just at their names. We pull the top ten holdings of every fund across every account you hold with us and add up the overlap. Clients are routinely surprised by how many times the same five or six companies appear.
- We set the concentration target before we make trades. This is a risk-budget decision, not a market forecast. Neither of us needs a view on whether the AI trade continues in order to decide whether 40% of your equity money belongs in ten stocks.
- When we trim, we do it on your terms. That means redirecting new contributions, rebalancing within set bands, harvesting losses elsewhere to oƯset gains, and using appreciated shares for charitable gifts where you are charitably inclined. Tax-aware trimming over several years beats a single large sale in almost every case.
- We don't replace one concentrated bet with another. Piling into a single alternative — one sector, one country, one theme — recreates the problem we set out to solve. Diversification means spreading the risk, not relocating it.
The Bottom Line
Market-cap weighting is not broken. It is doing exactly what it was designed to do: give the largest companies the largest weights. The question is whether the resulting portfolio still matches what you thought you owned, and whether it matches the risk you can actually live with when the next SK Hynix headline lands.
So if the market is up and you are still nervous, don't talk yourself out of the feeling — and don't act on it blindly either. Treat it as a prompt to ask us a direct question: how concentrated am I, and what happens to my plan if the top of the market corrects? Those are questions we can answer specifically for your accounts. Reach out, and we will walk you through it — a far better conversation to have now, while markets are calm, than after they aren't.
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Disclosure
This material is for informational and educational purposes only and does not constitute investment, tax, or legal advice, or a recommendation to buy or sell any security. Index performance is historical and does not reflect fees, expenses, or sales charges; investors cannot invest directly in an index. Diversification and hedging strategies do not guarantee a profit or protect against loss in declining markets. Past performance is not a guarantee of future results. All index and concentration data cited are as of the dates noted.
Risk analytics, stress testing, and scenario analysis are performed using third-party systems, including BlackRock's Aladdin platform. Reference to Aladdin does not imply any endorsement, affiliation, or partnership with BlackRock, and no compensation arrangement exists in connection with this material. Stress-test and scenario outputs are model-based estimates that rely on assumptions and historical relationships; they are not predictions, and actual results will differ.
Monte Carlo simulation results are hypothetical, do not reflect actual investment results, and are not guarantees of future outcomes. Results vary with the assumptions used, including return, volatility, inflation, contribution, and withdrawal inputs, and small changes in those assumptions can produce materially different results.
Alternative investments are not suitable for all investors. They may involve reduced liquidity, extended lock-up periods, limited transparency, higher fees and expenses, use of leverage, complex tax treatment, and eligibility requirements such as accredited investor or qualified purchaser status. Options and hedging strategies involve additional risks, may not be suitable for all investors, and can result in the loss of premium paid or the forgoing of gains above a set level.
This material reflects our views as of the date of publication and is subject to change without notice. Nothing here constitutes a recommendation for any specific person. Please consult your advisor regarding your specific circumstances.