Several of the biggest AI-related stocks have fallen hard from their recent highs.

Google: down 30% from its highs.

Nvidia & Broadcom: down 25%.

Meta: down 20%.

The most common explanation is that heavy AI spending has investors questioning whether the payoff will justify the cost.

And because these companies make up such a large slice of the S&P 500, "concentration risk" is back in the headlines.

So, what would a 50% drop in these stocks actually do to a diversified portfolio?

In today's email:

• How concentrated the S&P 500 really is right now
• Why that concentration has worked in both directions
• The simple math on what a 50% tech decline would mean for a diversified portfolio

As always, I'll wrap up with a few of the best retirement and investing articles I read in the past week.

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Before we dive in, did you catch this week's podcast? 👇

How Concentrated Is the S&P 500?

According to J.P. Morgan, the 10 largest stocks in the S&P 500 (including all five companies above) now make up 39% of the index's total value.

That's a big number, but those same 10 companies also generate about 37% of the index's earnings.

In other words, their size is roughly in line with their profits.

Even so, when 10 companies account for ~40% of the index, a sharp decline in their stock prices could have an outsized impact on the market.

Concentration Works in Both Directions

It's also worth remembering that these companies (among others) have driven a disproportionate share of the market's gains in recent years.

In 2024, for example, the so-called Magnificent 7 accounted for 53% of the S&P 500's 25% total return.

Without them, the index would have only returned ~12%.

So while concentration is constantly described as a risk, that same concentration was enormously helpful on the way up.

That doesn't mean the good times will continue, but it's a reminder that concentration cuts both ways.

Market Concentration vs. Your Portfolio

Investors who hold most of their money in S&P 500 or U.S. Total Market index funds are particularly exposed to this risk.

The risk is even greater for those with concentrated tech portfolios, leaving them more exposed than the indexes themselves.

It looks very different for investors who own a diversified mix of stocks across different sizes, sectors, and countries.

To see how different, let's do some simple math with a basic $1 million stock portfolio:

• 35% large-cap U.S. (S&P 500)
• 30% small-cap U.S.
• 20% international
• 15% emerging markets

(I'm not suggesting this is the "right" or "best" portfolio; I'm only using it to illustrate the point.)

In this portfolio, $350,000 (35%) is invested in the S&P 500.

Since the top 10 companies make up about 39% of the S&P 500, roughly $136,500 of that $350,000 sits in those 10 stocks.

That’s about 14% of the whole portfolio.

For someone who has all $1 million in the S&P 500, about $390,000 sits in those same 10 companies.

Nearly 3x as much!

What a 50% Drop Would Really Cost

Now, imagine if those 10 companies fell by 50%.

All else being equal, their direct contribution to the S&P 500's decline would be nearly 20 percentage points.

On the other hand, for the diversified portfolio above, it would only be about 7%.

Other investments might fall too, but the diversified portfolio is far less dependent on how those 10 stocks perform.

And that gap matters most in retirement, when you're selling investments to fund your spending.

A smaller decline means fewer shares sold at lower prices.

In other words, a highly concentrated market doesn't have to mean a highly concentrated portfolio.

Why Diversification Can Feel Disappointing

The goal of diversification isn't to maximize returns or eliminate risk, but to avoid relying too heavily on any one investment.

Some investments will disappoint while others exceed expectations, and we rarely know which will do what, or when.

Over the past several years, diversified investors may have lagged the S&P 500 largely because they held less of the big tech companies driving its returns.

But that doesn't mean diversification was a mistake. After all, things could just as easily have gone the other way.

And in 2025, they did.

The S&P 500 gained 17.9%, while developed international stocks rose 31.9% and emerging markets climbed 33.6%.

According to Dimensional, it was the widest margin by which international stocks outperformed the S&P 500 since 1993.

Nobody saw that coming, which is precisely why owning both matters.

Bottom Line

The market's concentration isn't irrelevant, and a decline in these companies would probably affect diversified investors too.

But how much it affects you depends on what's in your portfolio, not what's in the index.

If you've never checked, add up how much of your money sits in these 10 companies across every account, including old 401(k)s and individual stocks you've held for years.

If your portfolio is well built, that number should be a fraction of the index's ~40%.

Until next time, stay the course.

📚 What I've Been Reading

• October 2026 Market & Economic Update (Define Financial)
• 9 Ways Retirement Has Changed Over the Past Decade (US News)
• I’m Always Wrong About Gold. You Probably Are, Too. (Jason Zweig)
• Converting a Trump Account to Roth Isn’t as Powerful as It Sounds (The Finance Buff)
• What Was Jensen Huang T
• hinking? (Search Engine)
• Winner, Winner: The Chicken McNugget Story (Quartr)

Thank you for reading!

Please reply to this email with comments, questions, and/or feedback.

Stay wealthy,

Taylor Schulte, CFP®