Hey Reader

If a basketball team scores 100 points, that doesn’t mean every player scored 8. Two stars may have dropped 35 each. A few role players added another 30. The rest of the roster still matters, but they didn’t carry the scoring load.

The S&P 500 works the same way.

It contains 500 of America’s largest public companies, but they don’t all hold the same weight. The bigger a company becomes, the more influence it carries in the index. Analysts expect S&P 500 earnings to grow about 31% compared with last year. That sounds significant, but roughly two-thirds of that expected growth is coming from tech and AI-heavy companies like Alphabet and Meta.

This isn’t new. History tends to rhyme.

Energy became a dominant force during the oil shocks of the 1970s and represented approximately 28% of the S&P 500 by 1980. Technology reached roughly one-third of the index during the dot-com boom. Financial companies grew to around 20% before the 2008 financial crisis. Today technology is back in the lead, driven by companies producing chips, building cloud infrastructure, and investing heavily in artificial intelligence. The names and industries change, but market leadership has never been evenly divided among 500 companies.

That’s partly what the index is designed to do. As companies grow, they receive more weight. If they shrink or become less relevant, their influence falls. Some are eventually removed and replaced entirely. The S&P 500 doesn’t crown permanent winners. It adjusts as the economy evolves.

Understanding that history matters because it shapes how you should think about what you own today.

Diversified doesn’t mean equally divided. That’s worth keeping in mind when you look at what an index fund holds.

Owning an S&P 500 index fund gives you exposure to hundreds of companies across technology, healthcare, financial services, energy, consumer goods, and more. But that exposure isn’t spread evenly. The ten largest companies currently represent close to 38% of the index. When those companies are performing well, they can lift your returns significantly. When they struggle, you feel the pain.

That concentration also creates a less obvious risk for investors who own both an index fund and individual stocks. Say you own an S&P 500 ETF and then separately buy Microsoft, and Amazon because you believe in them as individual companies. That’s a reasonable decision, but you haven’t added two completely new investments. You’ve increased your exposure to companies that already make up a large part of your index fund.

Full disclosure, I own both of those companies individually and hold an S&P 500 ETF. It’s a deliberate choice, but it means those companies carry even more weight in my overall portfolio than they would if I just held the index alone. That’s fine just make sure you understand that.

The more practical question is whether you understand how much of your portfolio depends on the companies doing the heavy lifting right now. A few questions worth asking periodically:

• Which companies and sectors have the most influence in what I own?
• Am I diversifying or buying a greater share of what I already have?
• Is earnings growth relatively even across the market or coming from a small group?
• Would I still be comfortable with my portfolio if today’s leading sector had a rough stretch?

Not every player on the roster is there to score. Five hundred companies may be on the roster. That doesn’t mean all 500 are putting up the points.

— Stock Savvy Dad
​Invest smarter, build wealth, be a savvy dad.