If you’ve been following the financial news lately, you’ve probably seen the headlines. They all sound something like this: The top 10 stocks now make up a bigger share of the market than ever before.

Most of those stocks are large technology and AI-driven companies, and the concern is easy to understand. If a handful of giants dominate the market, what happens if they stumble? Won’t your portfolio stumble too?

It’s a fair question - and one we take seriously as financial advisers. But before rushing to make changes, it’s worth looking a little closer at what’s actually going on beneath the surface.

These Aren't Really "10 Companies"

One thing that often gets missed in this discussion is that these aren’t simple, single-line businesses. They’re massive ecosystems made up of many world-class operations - each of which could stand on its own as a public company.

Take Apple. Its AirPods business alone is estimated to generate around $20 billion in annual revenue. If Apple spun that division off tomorrow, it would be larger than Spotify, Nintendo, eBay, or Airbnb. The same is true of Apple’s Mac, iPad, and Wearables divisions - each could rank among the largest tech companies in the world on its own. 

And Apple isn’t unique. YouTube, tucked inside Alphabet, generates roughly $54 billion in revenue and would likely be one of the 20 largest companies globally if listed separately. Amazon’s AWS cloud business passed $100 billion in revenue last year. Microsoft includes Azure, LinkedIn, Xbox, and Office 365 - each producing billions on its own.

So part of this “top 10 concentration” story is really about corporate structure. If these companies were broken into their component parts, the market would suddenly look far more diversified, without you owning anything different at all.

Concentration Isn't New

Market leadership has always been concentrated. In the 1980s, oil companies and industrials dominated. In 2000, it was dot-com favourites, many of which no longer exist. The names at the top constantly change, but there's almost always a top 10 dominating returns.

What's different today is that these leaders have earned their position through actual revenue and profits, not speculation. The earnings generated by these companies justify much of their market weight. They sell real products to billions of real customers every day. This doesn't guarantee future success, but it's a more solid foundation than we've seen in previous concentration cycles.

The Index Adjusts on Its Own

If these companies underperform, they will naturally become a smaller portion of the index. You're not locked in forever to today's winners.

Index investing is designed to self-correct. It's designed to automatically reduce your exposure to declining companies and increase exposure to rising ones. The next generation of market leaders, whatever they turn out to be, will gradually replace today's giants as their fortunes change. This process has repeated itself over and over again for more than a century.

Today’s giants won’t dominate forever - and they don’t need to for long-term investors to succeed.

The Practical Question

Even if concentration does lead to higher risk or lower returns ahead, what's the alternative? Trying to predict which companies will decline? Moving to cash? Every alternative carries its own risks and usually involves speculation about an unknowable future.

When we look past the headlines, we still see strong reasons to stay confident in a diversified, long-term approach.

If you’re investing with a time horizon of 10 years or more, today’s concentration is unlikely to determine your outcome. Owning thousands of companies around the world remains the most sensible strategy - even if a small group currently sits at the top of the index. 🩷