A new Reuters column makes a point I've been circling for a while now, so let me say it plainly: if you own a plain S&P 500 index fund and think of yourself as a diversified passive investor, you're more concentrated than you probably realize. Not in ten companies. In one sector.

The math is simple. The S&P 500 is market-cap weighted, which means the biggest companies get the biggest slice of your money. When the largest handful of stocks are all technology or technology-adjacent names riding the AI build-out, your "broad market" fund quietly becomes a bet on one theme. You didn't pick Nvidia. You didn't pick Microsoft. But a meaningful chunk of every dollar you invest goes there anyway, because that's how the index is built.

I want to be careful here, because the takeaway is not "sell your index fund." I've written for months that a total market ETF is still the best first investment most people can make, and I haven't changed my mind. Index funds are cheap, tax-efficient, and far better than stock picking for the majority of people. The problem isn't the tool. The problem is assuming the tool gives you diversification it currently doesn't.

Diversification means your money isn't riding on one outcome. When the top of the index is dominated by companies whose earnings all depend on the same thing, sustained AI spending, you have to ask whether that's really true. If corporate AI budgets slow down next year, those stocks don't fall in isolation. They fall together, and they drag the index with them, because their combined weight is the index.

I lived through 2000. Plenty of folks back then owned "diversified" funds that were a third technology at the peak, and it took more than a decade for the sector to reclaim those highs. The index recovered faster, yes. But the ride was brutal for anyone who'd convinced themselves broad ownership meant safety. Same song, and I hear the opening bars again.

So what do you actually do? A few boring things, in my experience. Check the sector breakdown of your funds; most fund pages show it in two clicks, and if technology plus tech-adjacent communication services add up to half your portfolio, at least know that about yourself. Consider whether a piece of your money belongs in international stocks, which as I've noted before trade at far less demanding valuations than US shares. And if you're still contributing every month, keep doing that. Dollar-cost averaging through a drawdown is how patient investors have always been paid.

What I'd avoid is the reflex in both directions. Selling everything because the index is tech-heavy is panic dressed up as prudence. Buying more tech on purpose because that's where the returns have been is recency bias with a brokerage account. The middle path, knowing what you own, trimming concentration when it drifts, rebalancing on a schedule, wins quietly and often.

Ask yourself this: could you explain to a friend what percentage of your retirement money depends on the AI trade continuing? If the answer is no, that's the homework. Not a portfolio overhaul. Just the homework.

The index fund is still a fine machine. But machines need to be understood, not worshipped. Right now yours is making a bigger bet than the label suggests.

As always, this is my perspective from forty years of managing my own money, not professional financial advice. Talk to a fiduciary advisor before making changes that keep you up at night.