Your S&P 500 fund is a big AI bet, and equal weight isn't a free fix

Is a fund that owns 500 companies really a diversified fund? Strictly, yes. In practice, we think it is less so than it looks, and a lot of people who believe they own "the market" actually own a very large position in a handful of AI-linked giants.

The numbers vary by date and source, which is itself a warning. CNBC reports that the top 10 names account for nearly 40% of the index, and that the so-called Magnificent 7 make up roughly one-third. One crypto-focused outlet put the top 10 at a record 43% in July. We wouldn't fixate on the exact figure. The point is that it sits near 40%, and the sources describe it as above dot-com era levels.

Owning 500 stocks is not the same as owning 500 bets

Cap weighting means the more a company is worth, the more of your money goes into it. That is neutral in one sense: you hold what the market holds. But when the market is dominated by one theme, you hold that theme too. CNBC quotes Nathan Geraci of NovaDius saying the exposure is particularly concentrated in AI and the major hyperscalers, with investors questioning valuations and whether the heavy capital spending will pay off.

That is the part many passive investors miss. Nobody bought an S&P 500 fund to place a big bet on AI infrastructure spending. They bought it to avoid placing bets. In our view, that gap between the label and the contents is the real issue, more than concentration itself.

Concentration also isn't automatically bad. It exists because those companies grew, and index investors have benefited from it. But a rule that worked while the leaders kept winning is not a law of nature. CNBC notes the Mag 7 were flat in the first half of 2026, against a 9.3% gain for the S&P 500. Leadership can fade, and a cap-weighted fund will let you ride it down as faithfully as it let you ride it up.

Equal weight is a real alternative, not a magic eraser

The market has noticed. According to CNBC, the Invesco S&P 500 Equal Weight ETF (RSP) attracted more than $12 billion this year and passed $100 billion in assets for the first time. It was ahead of the market-weighted index by roughly 3% through August 21. Valuations help the argument: Invesco says that at August 31, 2026, the standard S&P 500 traded at a price-to-earnings ratio of 26.3, a 29% premium to the equal-weight index. Keep in mind that Invesco is the company that runs RSP.

Before rushing in, read the other side. Tema ETFs, which promotes its own alternative weighting approach, argues that equal weighting means heavy trading. It says the equal-weight index averaged nearly 6% quarterly turnover over the past seven quarters, more than six times the cap-weighted index. That can mean more taxable events, depending on where you live and what account you use. Tema also points to significant tracking error: you may look quite different from the benchmark everyone else quotes. Tema has a commercial interest, so weigh it accordingly, but we think the logic holds. Selling winners on a schedule is a choice, not neutrality.

Equal weight is also a bet in its own right. Geraci himself noted that the equal-weighted S&P 500 has historically performed very similarly to mid-caps, and that lower-cost options for that exposure are available. If that's what you want, there may be cheaper ways to get it.

What we'd actually do: look first, change second

We can't tell you what to buy, and rules and taxes differ by country and account. But the steps are cheap and sensible.

First, look up your fund's top 10 holdings and add up their weights. If you also own a tech-heavy fund or a growth fund alongside your S&P 500 fund, add that overlap. We suspect the total will surprise some people.

Second, decide whether you are comfortable with it. If your answer is "I didn't know, and I wouldn't have chosen this," that is useful information. Holding a large AI position is fine if you chose it knowingly.

Third, if you want less of it, treat it as a gradual adjustment rather than a dramatic exit. A partial shift toward an equal-weight fund, or simply adding other assets, changes your mix without abandoning the simplicity that made indexing attractive. Check costs and tax consequences first.

Our verdict: don't abandon index funds, and don't panic-buy the strategy that happens to be winning this year. Equal weight has had a good run in 2026, and good runs are a poor reason to make a long-term decision. The defensible position is awareness. The default isn't broken, but it is no longer as neutral as its reputation, and the person responsible for noticing that is you.