Diversification and Passive Investing Mitigate Tech Concentration Risk

Key Quotes

"It was definitely an interesting year. I think 2025 is a great example of a principle that we see all the time, and that it's just very, very hard to predict the market. So we started this year with a lot of people talking about a recession and potential down markets. And while yes, Elizabeth, to your point, we did have a pretty significant dip in April, the stock market continually set all-time market highs for a lot of the second half of the year."

NerdWallet investing writer Alana Benson highlights that predicting market movements is exceedingly difficult, as demonstrated by 2025's performance. Benson points out that despite widespread recession predictions at the start of the year, the stock market reached record highs in the latter half. This illustrates a recurring principle that market forecasting is unreliable.

"So one thing that has been interesting this year is how heavily weighted the S&P 500 now is with a very small handful of tech stocks. So in past decades, if you invested in an S&P 500 index fund, your portfolio would have been pretty well diversified. Now, the S&P is weighting those tech stocks in a way that makes those funds very tech-focused."

Alana Benson explains how the S&P 500's composition has shifted significantly due to the heavy weighting of a few tech stocks. Benson contrasts this with past decades, when an S&P 500 index fund offered broader diversification. Benson notes that current weighting makes these funds predominantly tech-focused.

"But one way you can help protect against volatility is if your portfolio is very tech-heavy, it's to diversify outside of that industry. And there are lots of funds that focus on other industries such as healthcare, energy, and commodities, and you can invest in those."

Alana Benson suggests a strategy to mitigate investment volatility, particularly for tech-heavy portfolios. Benson advises diversifying by investing in funds that focus on other sectors like healthcare, energy, and commodities. This approach aims to reduce over-reliance on the tech industry.

"The best thing to do is to have a well-diversified portfolio and not mess with it and just let it grow over time. It's boring, but it's true. And I'll tell you, I love boring when it comes to my investments."

Alana Benson advocates for a passive investing approach, emphasizing the importance of a well-diversified portfolio. Benson states that the most effective strategy is to avoid frequent adjustments and allow investments to grow over time. Benson finds this "boring" but ultimately true and preferable for personal investments.

"So first, make sure you're investing in the right places and you're not leaving money on the table. And that would be things like making sure you're getting your 401k match if you have one offered through an employer, contributing to an IRA in whatever amount you can or increasing it if you get a raise this year."

Sean Pyles outlines a checklist for individuals looking to optimize their investments in 2026. Pyles stresses the importance of utilizing employer-offered 401k matches and contributing to an IRA, even if it's a partial amount or an increase following a raise. Pyles frames these actions as essential steps to avoid missing out on potential financial gains.

"So think about how your life has changed or will change this year and factor that in. And you may want to consider doing some annual rebalancing as well. So say you're invested in 90% stocks and 10% bonds, and that's like a fairly aggressive portfolio, which is typically suited to someone with years and years before retirement."

Sean Pyles advises listeners to consider life changes when planning their investments for 2026 and to rebalance their portfolios annually. Pyles uses an example of a 90% stock, 10% bond allocation, typically suited for younger investors, to illustrate how an aggressive portfolio might need adjustment as one approaches retirement. Pyles suggests factoring personal circumstances into investment strategy.

"So if you open an investment account on an app, it can be really fun and easy to just buy and sell stocks quickly. But you do need to keep in mind that you'll likely need to pay taxes on the gains that you make from those sales. So it's a good idea to set up a system for yourself if you're selling stocks throughout the year."

Sean Pyles reminds investors that actively trading stocks, while potentially exciting, incurs tax obligations on profits. Pyles recommends establishing a system to track and set aside funds for these capital gains taxes. This proactive approach ensures that investors are prepared to meet their tax responsibilities.

"So I think people should really start from a place of asking one, what type of investment account do I need? And two, do I want to pick and choose my investments myself or have it managed for me? Rather than, 'Oh, this app looks really cool and I should use it.'"

Alana Benson advises prospective investors to prioritize understanding their needs before selecting an investment platform. Benson suggests determining the necessary account type and deciding between self-directed investing or a managed service. Benson cautions against choosing a platform based solely on its aesthetic appeal.

"Fidelity won as the best for beginners and the best investment app. I really can't say enough great things about Fidelity. I even use it myself. I have to work pretty hard to come up with a downside for it. I believe that Fidelity should serve most investors really well. It has advanced features, but the app is super intuitive enough for where if you're a beginner, you won't really get bogged down."

Alana Benson praises Fidelity for its recognition as the best investment app for beginners. Benson shares her personal use of Fidelity and highlights its balance of advanced features with an intuitive interface suitable for novice investors. Benson believes Fidelity is a strong choice for a broad range of investors.

"I'd just say meet yourself where you are, and if you're thinking about getting started with investing, just do it. Just rip the band-aid off. And I know it's scary, and a lot of people have either emotional or stressful hang-ups when it comes to putting their money in the market, but it is one of the best ways that you can take care of your future self."

Alana Benson offers final advice to aspiring investors, encouraging them to start investing regardless of their current situation or anxieties. Benson acknowledges that investing can be intimidating but emphasizes its crucial role in securing one's future financial well-being. Benson frames taking action as a form of self-care for one's future self.