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I’VE RECENTLY MADE the most significant change to my own portfolio in thirty five years. For the first time I’ve moved away from pure market-cap investing, tilting meaningfully toward Europe and Southeast Asia and bringing my US technology concentration down to around fifteen percent.
I’m retired. I don’t need to chase the outperformance that concentration might deliver, and I don’t need the potential volatility that comes with it. This is a personal position rather than any kind of recommendation; it’s nothing more than a risk management decision made at a point in life where I simply don’t need the risk.
What prompted it was a growing discomfort with something I suspect many everyday investors haven’t fully reckoned with: the S&P 500 is no longer quite the animal it once was.
A broad market index fund casts a wide net across the economy, and the S&P 500, which tracks the 500 largest US businesses by market value, has long been held up as the sensible default: low cost, well diversified, a bet on the whole rather than any one part of it. A sector fund works differently; it makes a deliberate, concentrated bet on a specific industry. If you believe technology is going to outperform the market as a whole, it gives you the ability to concentrate your capital into exactly the sector your research or gut instinct suspects is going to be the place to be and let it run.
The theory behind each is straightforward enough. A broad market fund captures a larger slice of the investment universe and is generally considered the lower-risk path. A sector fund comes with a well-understood trade-off: higher potential returns in good times, sharper drawdowns when sentiment turns. Investors who consciously choose a technology sector fund know what they’re signing up for. The risk profile is understood, accepted, and priced into the decision.
The problem is that the line between these two things has become a bit fuzzy, and most everyday investors haven’t noticed.
A handful of technology and technology-related companies (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet) have grown so dominant in their market valuations that they now represent a disproportionate share of the entire index. During the last year, the top ten holdings have accounted for roughly a third of the total weight of all 500 companies.
The mechanism behind this is simply how the index works. The S&P 500 is market-cap weighted, meaning the bigger the company, the bigger its slice of the pie. As technology companies scaled their dominance through the 2010s and into the 2020s, their weight within the index ballooned accordingly. The index didn’t change its rules; the market just rewarded one particular group of companies so heavily that they came to dominate the scoreboard.
This means the investor who bought the S&P 500 believing they were spreading risk broadly across the American economy (energy, healthcare, financials, industrials, consumer staples) owns something that looks quite different to the story they were sold. You buy five hundred companies and a third of your money lands in ten stocks, most of them operating in the same broad technological ecosystem. That is a concentration risk, whether it is labelled as one or not. It’s a sector fund “light”, acquired by stealth through the natural mechanics of market-cap weighting. The issue is that millions of everyday investors are carrying a version of that same risk without necessarily knowing it.
Although I’ve used the S&P 500 as an example here, it isn’t alone. Most broad-based indexes including developed world trackers will exhibit the same characteristics to varying degrees, because the same companies sit near the top of those indexes too. The MSCI World, often marketed as the global diversifier, allocates somewhere in the region of seventy percent to US equities, and within that, the familiar names reappear. You can cross borders on paper without ever really leaving the room.
None of this is an argument against the S&P 500.
The concentration reflects real, earned dominance; these companies grew to the top of the index because they genuinely deserved to. And whether my reallocation turns out to be the right call is genuinely unknowable. The concentrated index could continue to outperform for another decade and I’ll have left returns on the table, a real possibility I’ve made my peace with. The point isn’t that I’ve found the correct answer. The point is that I had the information to make a considered choice, weighed it against my own circumstances, and acted accordingly. That’s all any investor can do.
The uncomfortable truth is that a great many people haven’t been given the chance to do the same. They’re holding a product that has quietly changed its character, and nobody has thought to mention it. Better information doesn’t guarantee better decisions, but it at least puts the decision where it belongs: with the person whose money it is.
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Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.
Many purhase an index fund thinking it is “set and forget” and to avoid concentration risk. I got off of that merry go round several years ago. At the time tech was going toward 25% of the S&P 500. I think it peaked at 34%. I reallocated and purchased specialized sector ETFs including some oil, gold, etc. I avoid China and other sin stocks, although I do own a significant portion of ex-US stocks. I do have a significant percentage of value and growth and I do own individual stocks, some since 2008. I own only a fraction of a percent of Apple, Microsoft and Tesla, etc. This is far less than contained in the popularized indexes. I monitor the underlying composition of my portfolio but haven’t made any change of significance since 2024. In that year I purchased a few shares of a company I found to be interesting. Since 2018 my portfolio has done very well. Dividend payers have been helpful. I’m retired and first took a draw in 2018 and thereafter. Then an additional large >$50,000 withdrawal in 2022. My portfolio appreciation has significantly exceeded all withdrawals. I’ll never go back. I have maintained a significant cash allocation to tap in the event of a large market correction. I abhor bond funds, preferring individual bonds. I avoided the bond fund correction of a few years ago. I had publicly warned that bond fund holders were not being adequately compensated for risk. I do own a “token”, very small TIPS fund (<3%) which remains under water. It serves me as a reminder.
Here is also a follow-up on Equal weight vs Market Weight S&P 500 index funds.
https://www.wsj.com/finance/investing/your-investing-strategy-is-great-so-long-as-you-dont-actually-trade-anything-3a3d2b09?st=u5more&reflink=desktopwebshare_permalink
Both of these are by Jason Zweig at WSJ – he’s one of the reasons I still keep my subscription.
Here is a nice article from the WSJ that pokes some holes in this argument.
https://www.wsj.com/finance/investing/the-big-scary-myth-stalking-the-stock-market-29aedf50?st=B5XmUc&reflink=desktopwebshare_permalink
Thanks for the link. To my mind the article has a significant blind spot: it argues almost entirely from the perspective of a buy-and-hold accumulator with an infinite horizon, and essentially dismisses the entirely separate question of what concentration risk means during a drawdown for someone who cannot simply wait it out.
His 1932 analogy is doing a lot of work. Yes, buying at the bottom of an 86% crash produced spectacular returns over the next 25 years. But to benefit from those returns, you had to survive the 86% crash first. Most investors, particularly retirees, near-retirees, or anyone with a liquidity need, cannot absorb that kind of drawdown and simply wait. The time machine scenario is a perfect example of selection bias: it tells you nothing about the risk experienced on the way down.
Sequence of returns risk is completely absent from the analysis. This is the most glaring omission from a risk management standpoint. A 60-year-old with a concentrated index who suffers a 45–50% drawdown in year one of retirement faces a fundamentally different math problem than a 30-year-old accumulator. Withdrawals during a deep drawdown permanently impair the portfolio in a way that long-run average returns cannot fix. The Kritzman study measures annualized returns over 90 years, to my thinking, that’s a metric that is largely irrelevant to someone managing a distribution portfolio over a 20-year horizon.
This seems to equate sequence of return risk with concentration risk. While I can see extreme concentration risk leading to sequence of return risk they are not entirely the same, and it’s not clear to me that the current concentration in the S&P500 reaches the level of significantly increasing sequence of return risk.
To me the best way to mitigate sequence of return risk is proper asset allocation between types of assets (equities, bonds, cash) coupled with a withdrawal plan that is suitable for your timeframe. Managing the sector allocations of my stock portfolio seems secondary to that.
I don’t think I equated them, I argued that elevated concentration increases the magnitude of a potential drawdown, and it’s that magnitude which makes sequence of returns risk more destructive for someone in the distribution phase. Those are connected but distinct claims. On your second point I think we actually agree entirely — the reallocation I made was precisely the kind of asset allocation decision you’re describing, made at a specific life stage where I no longer need or want that concentration. The broader point in the original post was simply that many investors may not realise the S&P 500 now carries that concentration, which makes it harder for them to make the informed allocation decision you’re rightly recommending.
I agree with Mark.
Additionally, I would add that the article which compares the S&P 500 with the equal weight version seems overly dismissive and has some basic flaws.
The article compares returns before and after expenses and concludes that because of expenses, the equal weight is an underperformer ….. by 1/10th of a percentage point, while still returning 11.3% annually! Pretty thin argument IMO.
More importantly, by cherry picking dates you can generate different outcomes. For example, if the comparison starts in 2000 instead of 2003, the average annualized return of the equal weight (9.9%) is 1.6% higher per year than the S&P 500 (8.3%), which is a massive difference when compounded over 25 years. $100,000 compounds to $818,854 invested in S&P 500, the equal weight $1,152,902, which is 29% outperformance!
I knew I was going to be able to generate that outcome because the longer period includes the Dot Com bubble, which is the type of event you own the equal weight for. By choosing 2003 as the starting point Jason Zweig captures the recovery only from Dot Com bubble, which works significantly in favor of the S&P 500. The devil is in the details.
I assume the primary goal of equal weight is to address concentration risk, and it appears the equal weight held up much better and outperformed the S&P 500 when the chips were down from a risk perspective.
I understand the underlaying premise of the article is to illustrate the impact of fees/costs which is very important subject, but I think the example used to illustrate that is quite poor. Jason cherry picks data and his conclusions cast shade on the performance of the equal weight index which IMO are unjustified.
The comparison starts in 2003 because he was comparing funds and not indexes. The Invesco equal weight fund didn’t start until 2003. The whole point of the article is that an index is not a fund and that a fund based on an index may significantly underperform the index.
I’m open to the idea that an equal weight fund may mitigate concentration risk and possibly sequence of return risk vs a market weight fund- but I haven’t seen or found any evidence that it actually does.
Adam, fair comments. I still find his choice of example a little puzzling as the end result was so close. While the Invesco Equal Weight did not start until 2003 it is easy enough to back test.
That being said, we are in the minutia here. Bottom line, in order to get stock market returns you have to take the risk of investing and as history has shown there will be ups and downs. I agree with your separate comment above “To me the best way to mitigate sequence of return risk is proper asset allocation between types of assets (equities, bonds, cash) coupled with a withdrawal plan that is suitable for your timeframe. Managing the sector allocations of my stock portfolio seems secondary to that.”
Sorry for the length of this post, what can I say I went down the rabbit hole!
Mark, thank you for your contributions to the Humble Dollar site, I am certain your engagement and contributions are what Jonathan hoped for when he introduced the Forum.
I think this is an interesting topic and I found myself both agreeing and disagreeing with you at the same time. Why is that?
For context, I am 62 and pulled back to working part time in Jan 2024 and my wife who is 57 fully retired Sept 2024. When planning for this big change in our life we were concerned about “sequence of return risk”. We didn’t know it had a “name” when our planning conversations started, but intuitively we knew the stock market was volatile and wanted to do our best mitigating volatility and specifically a repeat performance of the lost decade in the S&P 500 between 2000 and 2010, where the annualized returns of the index were -1%. As we know the Dot Com Bubble and Great Financial Crisis were the main protagonists in that story.
To help mitigate the volatility we chose to both diversify our stock holdings and allocate a significant portion of our retirement savings to fixed income, to help ride out the storm should there be a significant market downturn.
We currently maintain a conservative 50:50 bond to stock asset allocation. 90% of the stock component is evenly split/diversified across S&P 500 (large cap blend), large cap value, small cap blend and small cap value ETF funds. The remaining 10% provides additional diversification including international and emerging markets ETFs, and a small Bitcoin holding held within Roth IRA’s.
One reason we own ETFs diversified across market sectors is to minimize the duplication and market concentration associated with the Magnificent 7. History has also shown that our chosen diversification slightly reduces volatility / drawdowns and slightly outperforms the S&P 500. Whether this holds in the future, as our daughter would say, IDK? That being said, history has shown each of these market sectors has it’s time in the sun and that time in the sun most often occurs when S&P 500 performance is in the basement.
To this point I see alignment with our approach and the reasoning behind your post, however as Lee Corso would say on College Gameday here in the States, “not so fast my friend!”
I think the S&P 500 is very much the animal it has always been. There I’ve said it, now I better explain myself.
Before I do and as a brief aside, and where again I agree again with your thesis, I have noticed many Humble Dollar investors have indicated a preference for simplicity and indicated they have significant portion of their stock holdings in Vanguard’s Total Stock Market ETF (VTI) or similar ETF/Mutual Funds, one and done as they say. Although VTI contains over 3500 stock holdings the Mag 7 currently account for 33.7% of the total holdings in the ETF and therefore the market concentration is very similar to that of the S&P 500. The MSCI World you referenced has a concentration of a little over 20%. In order to truly diversify, if that is a goal, it is important to look under the hood of the ETFs to avoid duplication (particularly the Mag 7) and play the game are you diversified?
Back on topic. Over the past two years I have found myself rebalancing our primary stock holdings as the S&P 500 outperformed the other market sectors. Selling some of the winning S&P 500 large cap blend sector and buying the lesser performing sectors (still winners BTW). Over the past few months, as concern with ‘market concentration’ in the S&P 500 has become more pronounced, it has been interesting to watch the rotation from the S&P 500 into the other sectors. I suspect the next rebalance will be to increase our S&P 500 holdings.
Given market concentration concerns why would I still do this? The answer is staying the course with our asset allocation and diversification plan.
My next best answer is the ‘nature’ of the S&P 500 and its ability historically to deliver 10% CAGR over the decades. I would describe the ‘nature’ of the S&P 500 as follows:
I could go on. The bottom line is the stock market and valuations will continue to be as unpredictable as ever, along with geopolitics, the price of oil, inflation, interest rates, currency exchange rates etc., all of which are inexorably connected. There will be good times and there will be bad times.
Our portfolio anticipates we will have our share of bad times, hence the 50:50 asset allocation. But our portfolio still includes the S&P 500 in the hope it will continue be the animal it has always been.
As always there are caveats. The S&P 500 allocation is only 1 cylinder in our V8 engine. We are not all-in or all out. Four cylinders are fixed income (municipal bonds in taxable accounts and US Treasuries in tax deferred), Four cylinders are diversified Stocks, including the S&P 500 (which mathematically makes it approximately 12.5% of our portfolio and the Mag 7 a little over 4%) and the turbocharger (which sometimes has significant turbo lag!) is in emerging markets and Bitcoin.
We have a plan that allows the asset allocation to move with the market but has guard rails which require a rebalance when the difference is more than 10% e.g. portfolio reaches an asset allocation of 60:40 or 40:60 it can work both ways. Above all, we have a belief that we will be fine no matter what happens and will adapt and roll with the punches, because as Mike Tyson said “Everyone has a plan ’till they get punched in the mouth.”
Grant, I appreciate the “V8 engine” analogy, and it’s clear your plan is working well for you. However, I’d offer a gentle nudge on the idea that the index is the same “animal” it was in 1980. While the Top 10 concentration percentage might look superficially similar in your historical overview, the internal anatomy has fundamentally shifted. In 1980, the top of the index was spread across diverse industries like Energy, Telecom, and Industrials, which provided a natural structural hedge. Today, that concentration has reached a historical peak of approximately 41%—nearly double the levels seen in 1990 (20%), 2000 (23%), or 2010 (19%)—and it represents a highly correlated bet on a single technological ecosystem.
There is also a bit of a paradox in your rebalancing strategy. You mentioned that you’ve been selling your S&P 500 winners to buy into lagging sectors to maintain your diversification. By doing that, you are essentially performing a “manual override” on the index’s natural mechanics. If the S&P 500 were truly the perfect, self-healing machine you described, you wouldn’t need to step in and trim it to keep your risk levels sane. The fact that you feel the need to lean against the index’s momentum suggests that its “stealth” shift into a concentrated sector fund is something even a seasoned investor like yourself has to actively manage. If a passive index requires active intervention to stay diversified, it has certainly changed its character.
I really appreciate you sharing such a thoughtful perspective, Grant. To be honest, your analysis is so thorough that it could easily stand as a featured post on the forum in its own right—I’m glad you went down that rabbit hole!
Grant/Mark – I enjoyed reading through that exchange.
Grant – the notion that the S&P 500 is self-correcting (self-healing) was what I was trying to offer below in response to Mark’s article. I think you did it much more thoroughly and eloquently.
Mark – I’m going to slightly push back on your comment to Grant stating, “…performing a “manual override” on the index’s natural mechanics.” I’d say the S&P 500 can be self-correcting, concentrated at times (or long stretches), but needing to rebalance relative to other allocations in one’s portfolio is perfectly acceptable and doesn’t necessarily prove that it’s an “annual override” or “active management” of an accepted passive index — rather it’s just portfolio rebalancing. Just my opinion and thoughts on the discussion.
Thanks for jumping in, and you’re absolutely right that routine rebalancing between stocks and bonds is perfectly standard — no argument from me there! But I think we might be talking about slightly different things, and I’d gently point you back to Grant’s own words.
Grant described selling his S&P 500 holdings and redistributing into other equity sectors — large cap value, small cap and the like — specifically because the index had drifted into concentration levels he wasn’t comfortable with. That’s happening entirely within the equity portion of his portfolio, not between stocks and bonds. So it’s less “I need to top up my bonds” and more “I need to trim the S&P 500 because it’s quietly become something I have to manage around.”
That’s really all I meant by “manual override” — perhaps not the most elegant phrase, I’ll grant you that! But if the index were the broad, self-diversifying vehicle it’s traditionally been described as, the logical response would simply be to hold it. The moment a thoughtful investor feels the need to trim it and redistribute within their equity allocation to keep their risk profile where they want it, they’re essentially acknowledging — as Grant himself seems to — that the index alone isn’t quite doing the diversification job it once did.
Which, funnily enough, was rather the point of the original article!
It’s broad index and factor investing mixed together..maybe…I don’t know. I in fact, did some of this at the beginning of the year – researching and adding large value with some more dividend than S&P 500’s ~1.11% yield.
All good…I’m learning…appreciate the response. That’s what HD is all about.
You could well be right. That’s something I never considered. I was being blinkered and only seeing the S&P500. Thanks for the insightful comments… keep them coming 😁
Thank you, Andy, and Mark for your comments. I always enjoy being challenged. It is easy to convince oneself that you are right and have it all figured out.
To add a little explanation on the structure of our portfolio. It is based on one of the portfolios that can be found on the Paul Merriman Foundation (PMF) website. The PMF site has multiple portfolio structures with a wealth of background information showing historic performance. It uses the S&P 500 as a benchmark for comparison.
PMF also show historic performance when overlayed with different levels of bond allocations and they also provide research on their ‘best-in-class’ index funds. This website is another rabbit hole for those who are interested. They have a number of educational podcasts, videos, a bootcamp for new / young investors, and education is their primary goal. They are not selling anything, and I have learned a great deal from their work.
Our stock allocation largely mirrors PMF’s “Four Fund Combination” which includes the 4 basic US Equity classes: large-cap blend stocks (the S&P 500), large-cap value stocks, small-cap blend stocks, and small-cap value stocks in equal measure, utilizing low expense diversified ETFs. The four index funds combined have holdings in approximately 3500 companies. The Top 10 in each fund have no duplications, to ensure diversification and avoid market concentration.
Cherry picking some data: Since 1970 the Four Fund portfolio construction has an annualized returns of 12.2% vs 11.0% for the S&P 500 over the same period. With a 50:50 stock/bond allocation, it has annualized returns of 9.8% since 1970. During the lost-decade 2000-2009 for a $1000 investment the S&P 500 returned -9.06% (-$90.60), the Four Fund 59.35% ($593.46) return and the Four Fund with 50:50 bond allocation delivered 77.85% ($778.48) return. Having survived the decade financially, somehow, I am attracted to a portfolio construction which stood up during that period. Past performance does not guarantee future returns. When we’ve seen one market-crash we’ve seen exactly one market-crash, each is different.
The PMF website also has a quilt chart which shows the performance of the different market sectors since 1928 and where the Four Fund sits in comparison. I find this quite informative in helping me understand how historically the different market sectors have performed. The S&P 500 has a long history of both being a top and bottom performer, having been top for a total of 28 years and bottom for 39 years of the 98 year’s total (quilt chart 1928-2024). Here is a link to the chart Paul Merriman Foundation Quilt Chart (hopefully this works – it did in Word). The Four Fund is never top nor bottom, it runs in the middle, which makes sense as it is essentially an average of the four market sectors.
My rebalancing between the four market sectors is to maintain 25% equal distribution and not because of concern one is getting too hot, cold or overly concentrated. Just a disciplined approach, which fits my personality.
As it relates to S&P 500 and concentration of technology stocks, I certainly agree that concentration is a concern. That being said, the S&P 500 has its own construct representing the Top 500 companies by market cap in the US and we live in an increasingly technology driven world where we benefit from the increase in productivity and earnings associated with that. Investing in growth stocks and the current market concentration therefore carries additional risk. I believe I have the risk partitioned off, given that the S&P 500 only represents 12.% of my portfolio. Doing the math(s), if the technology sector currently represents 41% of the index (railways represented 60% back in the day) and the whole technology sector has a drawdown of 50%, this would ‘only’ represent a 2.56% drawdown in the total portfolio. I think it likely that a 50% drawdown in technology would also likely manifest in a negative way across the market as a whole. It would be difficult if not impossible to construct an equities portfolio which is immune, hence the 50% bond allocation. In a market scenario where we have a steep drawdown in stocks I would be a net seller of bonds and net buyer of stocks to maintain the asset allocation in the portfolio. I have alerts set to flag when ETF’s / bonds rise or fall more than 10% and I can evaluate if/when to rebalance.
Grant. You seem to have yourself a well-researched, evidence-based passive investing strategy. You’ve clearly done serious homework and thought carefully about risk management and I like the fact you seem comfortable with “enough” as far as returns are concerned. Why reach for that extra few percent when it’s not required has been my new investment philosophy since retirement.
I could have saved a lot of print and said my wife insisted on a conservative plan and “we comfortable with “enough” as far as returns are concerned” 🙂
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Mark,
I really enjoy your articles and how you present things. This next comment isn’t refuting your decision but rather what popped in my head while reading.
This topic made me think, WWWD (what would Warren do ;))…Buffet. We all, or surely most, have read his comments on 90/10 S&P 500 and T-bills. What came to mind for me reading your article was that I hadn’t ever read where Buffett had caveated this with a concern of concentration. So, I guess he seems to think the market adjusts and figures things out organically and investors benefit.
Thanks for your timely article. I have made the decision to wait it out, in other words my strategy to hold about 70% in the S&P, 15% in stocks and 15% in Cash at about 3.5% interest rate will work for me. My take is no one knows what the world market is going to do or the USA market. Those 500 S&P companies got me to a good place, and I plan to ride it out for my lifetime which, with much more good health, about 20 more years. Not worried at all that the Trillion Dollar companies will remain relevant for a long time.
Reading your comment the other day on the investment risk article, I recognised my thoughts would run counter to your investment philosophy before I even put my finger to the keyboard— how could it not, given your 85:15 mix has outperformed VOO over a 50-year timeframe?
But I think the article’s point is being conflated. It wasn’t a critique of the S&P 500, nor an opinion piece on investment strategy. It was more a narrative about informed choice and decision-making — specifically around the slow, largely unreported concentration risk that has quietly crept into the index over recent years
.
I share your concerns about the overall high P/E valuation of the S&P 500 compared to US GDP with alarm bells ringing about the magnitude of investments in artificial intelligence by the Magnificent Seven (which remind me of Global Crossing etc. and that typically only the top two companies in an industry achieve above average profits). Given my existing investments in fixed income and my interest in generating capital gains, during the past two weeks I’ve invested in 1) Oakmark US Large Cap ETF OAKM which is a concentrated domestic value fund and 2) two large cap international index ETFs minus US, namely FNDF and IVLU.
Staying on the sidelines during the AI buildout could actually be the smart move, IF history echoes with the fibre glut, anyway.
It’s something to think about: the companies that funded the fibre rollout never saw a return. Their projections were wildly optimistic, the capital destroyed, the businesses mostly bust. But without that infrastructure, the streaming giants and tech behemoths generating billions today wouldn’t exist. The over-optimists were wrong in the short term and completely right in the long term, they just weren’t around to enjoy it.
Short-term delusion made long-term reality. A costly gift for their successors maybe?
The unknown question: will the AI buildout follow the same pattern? Massive capital flooding in, valuations untethered from reality, a brutal pullback, and then, years later, the survivors harvesting the infrastructure left behind?
I’m sure it’ll be different this time, it can’t happen twice, we’re much more sensible now…. right???
Tom: I think a lot of us are having similar thoughts, and if you haven’t already raised your cash levels and added to international holdings, probably should be thinking about it soon.
That said, as past inflections in the market have demonstrated, the benefits of non-correlation can quickly become iffy when markets begin a serious nose dive. Finding a safe place to invest until any semblance of a market bottom has been reached can be hard.
At my age (78), I am also increasingly conscious of my investment time horizon. in which I have less time to endure and then recover from a significant market decline. On the other hand, either I or my wife are likely to live for at least 10 more years, and a goodly portion of our holdings will be tied up for up to an additional 10 years in an inherited IRA.
As we need to be reminded, past returns are no guarantee of future returns. That said, if you have the resources to live through a major decline, sometimes doing the minimum can also be a successful strategy.
I see that you’re UK based. As a U.S.-based investor I share your concerns and address them by using a 60:40 blend of Vanguard Total U.S. Stock Market ETF (VTI) and Vanguard Total International (VXUS). This is essentially a “homemade” equivalent of Vanguard’s Total World Stock Market ETF (VT), which holds equities at global market cap weightings.
VT is currently 61% U.S. and the Magnificent 7 tech stocks comprise 17.34% of its assets. For what it’w worth, Vanguard has used 40% in international stocks in all of its LifeStrategy all-in-one funds for many years and was regularly criticized for doing so during the long run of U.S. stock outperformance we’ve seen for the past two decades. Now they’re looking like the smartest guys in the room again.
For a U.S.-based investor it must be said that owning foreign stocks has historically been more of a currency play (which is why it didn’t work out well during long periods of U.S. dollar strength) but with the gigantic growth of tech fueled by the AI frenzy ex-U.S. stocks have in effect become a small and mid-cap play and a way to diversify in industries towards corporations making real physical things and delivering tangible services. One could arguable do this more effectively by tilting towards small cap and/or small-cap value stocks using super concentrated funds like Avantis’s AVGV but as a conservative retiree I’m more comfortable just sticking with market-cap weighted funds.
I’ve recently been thinking about the same thing. I’ve considered moving to a non-weighted equivalent of the Index 500. If I remember correctly, you’re about 15 years younger than me, and that would enter into the calculus of actions to take right now (if it were me).
My plan, as it exists right now, is to live off of Social Security and a modest portion of my IRA/RMD. The unspent portion of my RMD typically ends up in a money market fund until I decide to do something else with it. That leaves my investment funds, which I generally leave untouched except for large and/or significant purchases. The ultimate plan is to leave the balance of this account to my kids. But if I were to make a change like either you or I suggest in my investment account, I’d get hammered by capital gains taxes. I’m not sure that would impact you in your tax scenario.
I’m in a fortunate position — every account I own sits inside a tax-sheltered wrapper, so capital gains simply aren’t a concern for me. Over my investing lifetime, the tax regime has been generous enough that I’ve been able to shelter substantial sums in retirement accounts. I don’t even hold a standard taxable brokerage account.
and how did you manage that?
Tax sheltered or tax deferred?
i
There was a similar article on Morningstar recently. It compared market cap SP500 funds with equal weight SP500 funds. Through various cycles, the returns essentially matched each other. There were times when the market cap concentration was profitable (tech runup, etc.), and there were times when owning the broad market was better.
This article echoes others I’ve read on this website which has led me to hold less VT and more SCHD, VYM, and VYMI.
These three ETFs are popular for the value/dividends-minded investor, for sure, especially SCHD. I was looking at all of these, including VIG.
If I remember right the VYMI has a high concentration on financial sector (40%). Because of that and the fact it had a big run up in 2025 I held off on making investment in VYMI.
I was really torn between the domestic value funds, VYM and VIG and opted for a VTV (US large value)/VUG (US large growth) mix to tilt towards value without giving up on the giant cap tech/growth play.
And vig
what % is now overseas