Many investors opt for index funds in the belief that by doing so, they are diversifying their risk across a broad segment of companies and industries. Increasingly, however, that is no longer the case.
Companies involved in information technology or communication services now make up about 43 percent of the S&P 500 index by market capitalization, according to a September report by U.S. Bank Wealth Management. Seven tech companies alone—Alphabet (Google), Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—now represent about 36 percent of the total market cap of the index, up from a 12 percent share in 2015.
