Start by measuring what you actually own, including the largest holdings inside every ETF and mutual fund. Then decide which concentration you want to reduce—company, sector, large-cap growth, U.S.-only, or stocks overall—and choose a target mix that fits your goals, time horizon, and ability to tolerate losses. Adding funds or tickers is not enough if they own the same companies.
Why a portfolio can own many stocks and still be concentrated
Diversification means spreading risk both between asset categories and within them. A portfolio with many funds may still depend heavily on the same handful of large technology and growth companies, or on the same market conditions. A fund’s name or number of holdings does not tell you how much genuine diversification it adds.
As an Amazon Associate I earn from qualifying purchases.
The concentration of the U.S. large-cap market has risen: T. Rowe Price reported that the ten largest S&P index constituents represented just under 18% of index market capitalization at year-end 2015, 38% by mid-2025, and almost 40% at year-end 2025. These are the firm’s calculations using FactSet data, reported in a 2026 Q1 publication marked for investment professionals only. The figures describe index concentration, not the AI exposure of any individual portfolio.
Audit your actual AI and market exposure
- List direct holdings. Record each stock and its percentage of the portfolio. Include the account or portfolio value used to calculate the weights.
- Look through each fund. Review current top holdings for every ETF and mutual fund, then identify companies that appear in more than one place. The SEC notes that even a mutual fund or ETF may not provide diversification if it is narrowly focused; its guidance recommends checking top holdings across funds.
- Classify each exposure. Note whether it is a single-company position, sector or theme, large-cap growth, U.S. exposure, or stock exposure generally. Record company size, geography, and asset category as well.
- Check fund design and cost. For each fund, examine its index or investment strategy, weighting method, fees and expenses, risks, prospectus, and latest shareholder report. The SEC’s index-fund bulletin explains that index construction and fees matter: an index fund can carry tracking error and other risks, and expenses reduce returns.
Market-cap-weighted indexes assign bigger weights to companies with larger market values. As a result, a broad U.S. index fund may still have substantial exposure to its biggest constituents. Check the actual weights rather than assuming that “broad market” means equal exposure across companies.
#1 Best Overall
Choose the concentration you want to reduce
There is no single allocation that suits every investor. The SEC says asset allocation depends on financial goals, time horizon, and willingness and ability to take risk. First identify the problem you are trying to solve; then evaluate the corresponding diversification dimension.
| Concentration to examine | Possible diversification dimension | Trade-off to consider |
|---|---|---|
| A few individual companies | Spread equity exposure across more companies and industries. | More holdings do not automatically reduce risk if they share similar exposures. |
| Technology or AI-related themes | Evaluate exposure to other industries, such as consumer goods or health care. | Different industries can still be affected by broader market declines. |
| Large-cap growth stocks | Consider whether smaller-company or value-oriented equities fit the intended portfolio. | These investments may behave differently from a large-cap growth benchmark; divergence can be uncomfortable and is not a guaranteed advantage. |
| U.S.-only equities | Evaluate equities outside the United States, including developed markets. | International exposure adds different market risks and may not track U.S. stocks. |
| Stocks overall | Consider whether bonds or cash belong in the target asset mix. | Stocks have greater growth potential and volatility; bonds generally have less volatility and more modest returns; cash equivalents generally have low investment-loss risk but can lose purchasing power to inflation. |
Vanguard’s 2026 discussion of the AI era identifies high-quality U.S. fixed income, U.S. value, and developed markets outside the U.S. as areas investors might evaluate. These are analytical dimensions, not universal recommendations. Vanguard also cautions that its illustrative portfolio can diverge significantly from a typical 60/40 portfolio and says investors should consider their own risk tolerance, plans, and time horizon.
Rank #2
- Comes with secure packaging
- Easy to read text
- It can be a gift option
Does an S&P 500 or total-market fund diversify AI stocks?
It can broaden exposure beyond a few individual positions, but it may not remove concentration in the largest companies. An S&P 500 or total-market fund can be market-cap weighted, leaving the biggest constituents with the largest weights. A sector-focused ETF may be narrower still. Compare its current holdings with your direct stocks and other funds to see whether it reduces the exposure you intend to reduce.
Before buying a fund, inspect the holdings, index methodology and weighting, fees, risks, and fit with your goal. The SEC recommends reviewing fund documents and available holding disclosures. An allocation or risk questionnaire can help organize thinking, but the SEC warns that free questionnaires may be biased toward products sold by their sponsors.
Set a target and rebalance by a rule
Once you have chosen a target allocation, rebalancing is the process of bringing the portfolio back toward it when market movements cause weights to drift. The SEC describes two approaches; neither is established as the best schedule for everyone:
- Calendar review: Check the allocation at a regular interval, such as every six or twelve months, and rebalance if needed.
- Threshold review: Rebalance when an allocation moves beyond a preset percentage from its target.
The SEC notes rebalancing tends to work best relatively infrequently. Set a method you can follow, and consider the costs and tax consequences of transactions in your circumstances. Do not treat a particular interval or drift threshold as universally optimal.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What diversification can—and cannot—do
Diversification can reduce dependence on a single company or market segment, but it cannot guarantee gains or prevent losses. Adding holdings may also add fund expenses, and bonds and cash have their own risks. The SEC’s beginner guide notes that large-company stocks have lost money on average about one year in three; that historical observation is not an AI-specific statistic or a forecast.
Quick Recap
Best Value
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
