S&P 500 Concentration Risk

Observant1

Some in the financial industry warn of excessive concentration in the S&P 500 which may elevate risks
to investors. Recent research by Mark Kritzman, chief executive of Windham Capital Management,
and David Turkington, head of State Street Associates concludes you should not diversify out of
an S&P 500 or total stock market fund to reduce concentration risk.

“'Taking risk off the table every time the market gets more concentrated would have been
very harmful historically,' Kritzman tells me. 'It may help you avoid some fraction of the selloffs,
but you incur a huge opportunity cost in losing out on the run-ups.'”

https://www.msn.com/en-us/money/markets/the-big-scary-myth-stalking-the-stock-market/ar-AA1WhMcI

sma3

I think it really depends on your time frame. A retiree who was only in the SP500 in 2000 would have had to wait almost 13 years before his account value returned to that original level and stayed there. Pretty hard to take if you needed to sell to pay the rent.

Value and small caps did very well however.

Observant1

I'm not concerned by the fact that 33% of the S&P 500 is allocated towards seven stocks.
The seven companies, however, share similar economic exposures which increases risk.
Current market expectations for these businesses are very high and possibly unrealistic.
Significant S&P 500 declines could occur if expectations are not met.