Are you worried that investing in today's technology-focused stock market is dangerous?
Imagine a time machine, like Doc Brown's DeLorean in "Back to the Future, " that could transport us to the best possible times in history to invest. I don't know about you, but I would set the destination circuits to June 1, 1932. On that date, the S&P 500 had fallen 86.2% from its peak price in 1929.
That way, I could earn some of the highest annualized long-term total returns ever recorded: roughly 12.3%, 15.1% and 16.1% over the ensuing 10, 20 and 25 years, respectively. A 16.1% annualized return over 25 years would turn $100,000 into nearly $4.2 million.
I wouldn't thank Doc Brown's flux capacitor for my millions. Instead, I'd thank what many financial advisers and asset managers call a "dangerously overconcentrated" stock market.
You see, on June 1, 1932, 12.7% of the value of the entire U.S. stock market consisted of a single company: AT&T.
That's way more than today's biggest stock, Nvidia, which accounts for 7.8% of the market value of the S&P 500 and 6.9% of the total U.S. market.
Our time-traveling expedition is imaginary, but the numbers are real. And with stocks wobbling the past two weeks, those numbers help counteract Wall Street's latest myth: that today's market, dominated by giant tech companies, is a monster that will stomp your index funds to bits.
Countless financial advisers and asset managers are saying the S&P 500 is " excessively concentrated," " presents elevated risks to investors," " is broken" and is " not safe!"
That's why, these people say, you need to hire them to dodge tactically in and out of markets, pick stocks or funds for you, or get access to nontraded assets like private-equity funds that will supposedly shelter you from the concentration monster.
As I've warned before, investors need to be wary of messages about markets that are really about marketing.
"The investment community has always agreed on all these tribal 'truths' that have no basis in data," says Tim Atwill, a former senior analyst at Russell Investments and ex-head of investment strategy at Parametric Portfolio Associates who blogs about institutional investing.
For as long as index funds have existed, they've been under attack from competitors flinging one flimsy pretext after another.
In the 1970s and 1980s, tracking the market with low-cost index funds instead of hiring an expensive stock picker was "settling for average." (Index funds went on to outperform the average active fund.)
In the 1990s, brokers called index funds "tax bombs" that would supposedly hit investors with huge, unexpected tax bills. (Didn't happen.) Then came warnings that index funds couldn't protect you against market crashes. (Nor could almost any active funds, it turned out.) More recently, stock pickers touted their unique abilities to pick socially responsible companies. (Never mind.)
"Concentration risk" is the newest in this long line of marketing blitzes. Most of the so-called Magnificent Seven -- Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla -- didn't even outperform the S&P in 2025, and so far this year they are all trailing the index. But that hasn't stifled the scary talk about how dangerous they are.
Why? Because it feels like common sense. Everyone knows not to "put all your eggs in one basket." Having 33% of your money in seven companies -- which is high, although not unprecedented, by historical standards -- sounds a lot like too many eggs in too few baskets.
If you own an S&P 500 or total stock-market index fund, should you diversify out of it to reduce your "concentration risk"?
No way.
That's the conclusion of recent research by Mark Kritzman, chief executive of Windham Capital Management, and David Turkington, head of State Street Associates, both based in Cambridge, Mass.
After all, by definition, concentration goes up whenever winning stocks keep winning.
"Taking risk off the table every time the market gets more concentrated would have been very harmful historically," Kritzman tells me. "It may help you avoid some fraction of the selloffs, but you incur a huge opportunity cost in losing out on the run-ups."
Over the past 90 years, if you'd cut back on stocks whenever the market was becoming more concentrated and added to stocks whenever concentration was declining, you would have earned an annualized average of 0.9 percentage point less than if you'd simply bought and held.
That's not to say the stock market isn't risky or can't crash. But concentration itself isn't a source of risk that you need to get rid of.
Diversification isn't merely a function of how many companies you own and how much money you have in each one.
It's also the "economic exposures" of your holdings that matter, says Kritzman: each company's suppliers, technology, products, markets, access to capital and geographic reach. Giant companies, even in the same industry, have much more-diversified economic exposures than smaller companies do.
That's why, Kritzman and Turkington find, investing in only a handful of the biggest companies has "essentially the same" riskiness as owning all the rest of the stocks in the S&P 500 combined. "The largest stocks are just safer," Kritzman says -- making them intrinsically well-diversified.
"Active managers are very good narrative creators," says Atwill, the former Russell and Parametric executive. "The industry has had a lot of time to practice all these effective narratives to make people believe the managers possess this magic."
Don't fall for it.