You Bought 500 Companies. You Actually Own About Ten.

The world's most popular financial product

There is a very good chance that you, or your pension, owns something called an S&P 500 index fund. It is quietly one of the most popular financial products ever created, and for excellent reasons.

The pitch is beautiful in its simplicity: instead of trying to pick winning companies, which almost nobody does well, including most professionals who are paid handsomely to try, you just buy all of them. All 500 of the biggest companies in America, in one go, for a tiny fee.

It's the financial equivalent of not backing a horse, and instead owning a slice of the racecourse.

And the reason people love it is one word: diversification.

Which brings me to the thing I want to show you today, because I think a lot of people own this fund believing they're doing something they are, in 2026, no longer really doing.

First, what diversification actually means

Let's do this properly, from scratch, because it's the single most important idea in investing and it's usually explained terribly.

Imagine you own one shop. It sells ice cream.

Brilliant business in July. Catastrophic in January. Your income is a rollercoaster, entirely at the mercy of the weather.

Now imagine you own two shops: one sells ice cream, one sells umbrellas.

Sunny week? Ice cream shop prints money, umbrella shop is dead. Rainy week? The reverse. But your income, across both, is now far smoother. You've not made yourself richer, necessarily. You've made yourself less fragile. You've stopped betting everything on one thing happening.

That's diversification. It's not about maximising your gains. It's about making sure that no single event can wipe you out.

And the whole promise of an index fund is: you own 500 different shops, selling 500 different things, so no single bad event can take you down.

Here's the problem.

The racecourse got a lot smaller

An S&P 500 fund does not give you an equal slice of 500 companies. This is the bit that trips almost everyone up, and it's crucial.

It's weighted by size. The bigger the company, the bigger your slice of it.

Think of it like a pizza cut for a family where one uncle is enormous. Technically everyone gets a slice.

Practically, the uncle is getting most of the pizza.

For most of modern history, this was fine, because the size gap between the biggest companies and the rest was manageable. Between 1990 and around 2015, the ten largest companies in the index made up somewhere around 18–23% of the whole thing. So yes, the biggest ten got a bigger slice, but the other 490 companies collectively owned roughly 80% of the pizza. Genuinely diversified.

Now here's the 2026 number.

The top ten companies now make up over 40% of the entire index.

Read that again, because it's genuinely one of the more remarkable facts in modern markets. At the absolute peak of the dot-com bubble in 2000, a period now taught in textbooks as a cautionary tale of dangerous concentration, the top ten were around 27%.

We are now well past that.

So when you buy an S&P 500 fund today, roughly £4 of every £10 you invest goes into ten companies. The other £6 gets spread across the remaining 490.

Your ice cream shop and umbrella shop portfolio? It turns out both shops are on the same street, both are owned by the same landlord, and that landlord's name is Big Tech.

Why the ten aren't really ten

Here's where it gets more uncomfortable, and where I want to introduce the concept that actually matters: correlation.

Diversification only protects you if your holdings behave differently from each other. Ice cream and umbrellas work because they respond to opposite weather.

But if you owned an ice cream shop and a sunglasses shop, you haven't really diversified at all, you've just bought two bets on the same sunshine. When the clouds come, both die together. That's high correlation, and it's diversification in appearance only.

Now look at the top ten of the S&P 500. Most of them are technology companies. Most of them are, right now, making enormous bets on artificial intelligence. Many of them are each other's biggest customers, chip makers selling to cloud providers, cloud providers buying from chip makers, everyone spending vast sums on the same wager that AI pays off.

They are not ten independent shops. They are, to a meaningful extent, ten businesses exposed to the same weather.

So when someone says "I'm diversified, I own the S&P 500," what's often true in 2026 is: they own a large, concentrated bet on the artificial intelligence buildout, wrapped in the packaging of a diversified product, and they never consciously chose that bet at all.

That's the thing I want you to see. Not "this is bad." Not "sell everything." Just: you should know what you own.

The tell that professionals actually watch

There's one more number here, and it's the one I'd want you to understand more than any other, because it's how you tell the difference between a company being big because it earns a lot, and a company being big because people are excited about it.

Those are extremely different things.

Around 2015, the top ten companies made up about 19% of the index's value, and they also generated about 19% of the index's actual profits. Value and earnings lined up almost exactly. The big companies were big because they made a lot of money. Fair enough. Nothing strange there.

Today, that top ten makes up over 40% of the index's value, but they do not generate 40% of its profits. A gap has opened up between how much of the index these companies represent and how much money they actually make.

That gap is not necessarily a disaster, it's a bet. It's the market saying: these companies will grow their profits fast enough to eventually justify today's price.

They might! Some of them are extraordinary businesses, far more profitable than anything the dot-com era produced. This is not 1999 with better logos.

But it is a bet. And the crucial thing is: if you own the index, you have placed that bet, whether or not anyone told you.

So what do you actually do with this?

Here's where I have to be straight with you, and it's the same thing I'll say in every piece I write: I don't know your situation, and I'm not going to tell you what to buy or sell. Anyone who does that without knowing your

income, your debts, your timeline and your temperament isn't helping you, they're performing.

What I can do is tell you what the choices actually are, so you can make an informed one rather than an accidental one.

Option one: know the bet and keep it. Plenty of thoughtful investors look at the concentration, look at how profitable these companies genuinely are, and decide: yes, I'm comfortable owning that. That's a legitimate, informed position. The key word is informed.

Option two: dilute it. Some people hold an "equal-weight" version of the same index alongside the standard one, a version where all 500 companies get the same size slice, so the enormous uncle doesn't get most of the pizza. Same companies, very different exposure.

Option three: look outside. The S&P 500 is 500 American companies. It is not "the market." There is an entire planet of other companies, other countries, other asset types.

None of these is automatically right. Genuinely. The one thing I'd argue is not defensible is the fourth option: holding a large concentrated bet on a single theme, believing you're safely diversified, and only discovering the truth when it stops working.

The lesson underneath the lesson

Here's what I actually want you to take away, and it's bigger than index funds.

The most expensive mistakes in investing rarely come from information nobody had. Everything I've just told you is public. Anyone can look it up. It's in the fund's own documentation.

The expensive mistakes come from not checking what you own, because the label on the tin sounded reassuring.

"Diversified" is a label. Your job, and it takes about twenty minutes, once, is to open the fund, look at the top ten holdings, and see what you've actually got. Not because the answer is necessarily alarming. But because "I know exactly what I own and why" is the single most underrated position in all of investing.

Most people never do it. Now you know how.

Next in this series: why the wealth gap has less to do with income than almost anyone realises, and what compounding actually does to a life.

References

J.P. Morgan Asset Management — "How extreme is market concentration?": https://am.jpmorgan.com/us/en/asset-management/liq/insights/market-insights/market-updates/on-the-minds-of-investors/how-extreme-is-market-concentration/

RBC Wealth Management — "The 'Great Narrowing': S&P 500 concentration": https://www.rbcwealthmanagement.com/en-us/insights/the-great-narrowing-sp-500-concentration

Guinness Global Investors — "Is there a rising concentration risk in the S&P 500?": https://www.guinnessgi.com/insights/sp-500-concentration-risk

Commonfund — "The New Era of Market Concentration": https://www.commonfund.org/blog/the-new-era-of-market-concentration

S&P Dow Jones Indices — S&P 500 index factsheet and constituent weightings: https://www.spglobal.com/spdji/en/indices/equity/sp-500/