When “Beating the Market” Stops Being the Point

Here’s a phrase I hear a lot: “The market is having a great run!” On paper, it’s true. But when you look under the hood at what’s actually pushing those numbers up, the picture gets more interesting, and a little more concerning if you’re getting close to retirement.

Most of us think of the S&P 500 as a broad slice of the American economy. Five hundred big companies, spread around, all pulling together. That used to be a fair way to see it. It’s less true now.

At the end of 2025, the 10 largest companies in the index made up about 40% of the whole thing. In plain terms, if you had a million dollars in an S&P 500 fund, roughly $400,000 of it was riding on just 10 companies, most of them sitting in the same corner of the tech world.¹ Ten years ago, those same top 10 were closer to a fifth of the index. So in about a decade their slice has roughly doubled, and a good bit of that happened recently as money poured into anything connected to artificial intelligence.² That’s the most top-heavy the index has been in over 50 years.³

Here’s why it matters for you.

A lot of folks still believe the goal is to “beat the market.” Find the right manager or the right hot stock and outpace the S&P. I understand the appeal. But that’s gotten harder, not easier. Last year, around 79% of professional large-company fund managers, people who do this full time with research teams behind them, failed to beat the S&P 500.⁴ Stretch the window out to twenty years and that number climbs to roughly 92%.⁵

And part of the reason loops right back to concentration. When a small handful of giant companies are doing most of the heavy lifting, “beating the index” really means correctly guessing that those same few names will keep winning, and knowing when to step aside before they don’t. That’s a tough game for anyone.

So, if you’re planning to retire in the next ten years or so, I’d gently push back on the idea of beating the market as your goal. Reaching for the top usually means taking on more risk, and risk cuts both ways.

Diversification and Portfolio Resilience

This is where diversification earns its keep, and the reason is worth understanding its importance. Most people assume diversification is about getting a better return. It really isn’t. Spreading your money across different types of investments will sometimes mean you trail a red-hot stock market in its best years. You give up a little of the top.

What you get in return is a narrower range of outcomes. Your good years may be a touch less spectacular, and your rough years tend to be less brutal. That tighter band matters more than people realize, and for two reasons.

The first is financial. While you’re still working, a bad market is uncomfortable but recoverable. You’ve got time on your side and a paycheck coming in. Once you’re retired and drawing income from your accounts, a steep drop early on becomes a different animal. You end up selling investments while they’re down just to cover living expenses, and that can do lasting damage even if the market eventually bounces back. A steadier ride helps protect the income you’re counting on.

The second reason is mental, and I’d argue it’s every bit as important. A portfolio that swings wildly is hard to live with. It’s the kind of thing that has people checking their accounts at two in the morning and making fear-driven decisions at exactly the wrong moment. I’ve watched level-headed, sensible people walk away from a perfectly good plan in a scary market, and the cost of that panic is usually far worse than the drop that caused it. A calmer ride makes it so much easier to stay put, and staying put is most of the battle.

None of this means the big companies are bad, or that the S&P 500 is somehow broken. It’s simply a reminder that what looks like a broad, safe index has quietly turned into more of a bet on a small cluster of names. For most of us, and especially those nearing retirement, the goal was never to win a race against the market. It’s to build something steady enough to carry us well into the years we’ve worked so hard for.

See disclaimer below. Diversification does not guarantee a profit or protect against loss in a declining market. Past performance is not a guarantee of future results.