{"id":24860,"date":"2025-08-21T07:30:00","date_gmt":"2025-08-21T11:30:00","guid":{"rendered":"https:\/\/jeffclarktrader.com\/market-minute\/?p=24860"},"modified":"2025-08-20T15:13:24","modified_gmt":"2025-08-20T19:13:24","slug":"heres-why-index-funds-can-be-risky-business-today","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/heres-why-index-funds-can-be-risky-business-today\/","title":{"rendered":"Here’s Why Index Funds Can Be Risky Business Today"},"content":{"rendered":"
\n

Managing Editor’s Note: <\/em><\/strong>Today, we’re hearing from our contributing editor Mike Burnick in his weekly Thursday feature.<\/p>\n

 Mike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing.<\/p>\n

 And he’s been senior analyst at TradeSmith for three years, running Constant Cash Flow, Infinite Income Loop, and Inside TradeSmith.  <\/p>\n

 Here’s Mike…<\/p>\n<\/div>\n

Here’s Why Index Funds Can Be Risky Business Today<\/h2>\n

BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE<\/em><\/strong><\/p>\n

If you have money invested in an S&P 500 Index fund – as untold millions of investors do – you have two problems.<\/p>\n

The first is a severe lack of diversification, because what you’re getting for your investment buck in these funds isn’t really a diverse list of 500+ blue chip companies.<\/p>\n

In reality, 40% of your money is actually going into just 10 stocks, which is an all-time-high level of top-heavy concentration for the S&P 500.<\/p>\n

In fact, it’s more concentrated now than before the dot-com bust in 2000, when the top 10 stocks accounted for over 25% of the index weight.<\/p>\n\n

\"\"<\/figure>\n\n

At least back in 2000 there were a few banks, healthcare, energy, and industrial stocks thrown in for good measure.<\/p>\n

Today, it’s all tech, except for JPMorgan Chase and Berkshire Hathaway…<\/p>\n\n

\"\"<\/figure>\n\n

And aside from the lack of diversification, the other big problem for this top-heavy investment is… higher risk<\/em>.<\/p>\n

The dominance of these mega-cap stocks in the S&P 500 makes the index itself a lot riskier. That’s because these stocks are extremely sensitive to the twists and turns in financial markets.<\/p>\n

There’s a fancy Wall Street term for this known as “beta.”<\/p>\n

A stock with a beta of 1 generally moves with the market. While a stock with a beta of 1.25 would move 25% more, both up and down, than the market. Finally, a beta below 1 means the stock is more defensive and moves less than the market.<\/p>\n\n

\"\"<\/figure>\n\n

Just 10 years ago, the beta of the top 10 stocks in the S&P 500 was about 1, the same as the market’s beta.<\/p>\n

Today, the beta of the top 10 stocks is nearly 1.5, or 50% more volatile than the market.<\/p>\n

The rest of the S&P 500 index, excluding the top 10 stocks, has a beta of just 0.80 today, or about 20% less volatile than the market.<\/p>\n

We saw this play out live during the tariff turmoil early this year. The Magnificent 7 stocks as a group plunged 30% while the equal-weighted S&P 500 fell just 17%.<\/p>\n

Bottom line<\/em><\/strong>: Although we haven’t experienced a similar selloff since the April low, experience says another is coming sooner or later. And when it does, owning the top 10 stocks, or an S&P 500 Index fund for that matter, could be very risky business.<\/p>\n

Good investing,<\/p>\n

\"Signature\"<\/p>\n

Mike Burnick
\nContributing Editor, Market Minute<\/em><\/p>","protected":false},"excerpt":{"rendered":"

Owning an S&P 500 index fund is riskier than ever.<\/p>\n","protected":false},"author":100,"featured_media":0,"comment_status":"closed","ping_status":"0","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[],"person":[155],"newsletter-type":[],"ticker":[],"class_list":["post-24860","post","type-post","status-publish","format-standard","hentry","category-market-minute","person-mike-burnick"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/24860","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/100"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=24860"}],"version-history":[{"count":2,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/24860\/revisions"}],"predecessor-version":[{"id":24896,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/24860\/revisions\/24896"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=24860"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=24860"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=24860"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=24860"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=24860"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=24860"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=24860"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}