Fidelity Just Warned 500-Stock Fund Owners. 35% to 40% of Your S&P 500 Moves Come From 7 Mega-Cap Stocks

I’ve been holding NVIDIA for over 15 years and Apple since 2012, so when financial advisor Wes Moss told a caller on The Clark Howard Podcast on June 2, 2026 that the S&P 500 is not what most people think it is, I paid attention. A listener named Tony from Utah had received a letter from Fidelity warning that his S&P 500 fund no longer qualifies as diversified because the Magnificent 7 now drive most of its moves. Tony asked Moss if he was overthinking his plan to add mid-cap, small-cap, international, and bond funds around the index.

Moss was blunt: "Hey, your S&P 500 is not that diversified anymore… 35 to 40% of the movement of that fund is in only 7, 8, 9, 10 stocks. So it’s technically, it’s really not that diversified." He told Tony, "You’re not overthinking. I think you’re being smart about it."

The verdict: Moss is right, and the math is uglier than most owners realize

If you own an S&P 500 index fund and believe you own 500 companies in any meaningful sense, you don’t. You own a handful of mega-caps with a long tail attached. Look at the SPDR S&P 500 ETF Trust (NYSEARCA:SPY | SPY Price Prediction) as of mid-March 2026: NVIDIA (NASDAQ:NVDA) was 8% of the fund, Apple (NASDAQ:AAPL) was 7%, and Microsoft (NASDAQ:MSFT) was 5%. Three stocks alone made up 19% of net assets, and the top 7 holdings combined accounted for 33%.

Put a number on it. If you invest $10,000 into an S&P 500 index fund, roughly $1,915 of that goes into the top three mega-caps. About $3,300 funds the seven largest names. The remaining $6,700 gets spread across 493 other companies. That’s the market-cap weighting Moss is pointing at. Bigger company, bigger slice, bigger influence on what the fund does tomorrow.

The concentration also shows up in returns. SPY is up 11% year-to-date and 28% over the past year. The Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP), which weights every component the same, is up 10% YTD and 21% over one year. The gap is mega-cap dominance. NVIDIA is up 19% YTD, Apple is up 16%, while Microsoft is actually down 8% YTD despite Azure growing 40% last quarter. When the giants diverge, the rest of the index can’t move the dial much either way.

The variable that decides everything: do the mega-caps move together?

The single factor that determines whether this concentration helps or hurts you is correlation among those top names. When AI sentiment is hot, NVIDIA, Microsoft, and the rest tend to rise together, and your S&P 500 fund prints big numbers. When sentiment cools, they fall together, and the "500 stocks" label gives you far less cushion than you’d expect.

Run the scenario yourself. Take a $10,000 position. If the top 7 holdings drop 30% in an AI repricing while the other 493 stocks are flat, your fund still falls roughly 10% because that top slice carries so much weight. In an equal-weighted fund where each name is about 0.2%, the same shock barely registers. That’s the mechanic Moss is pointing to when he tells listeners to look at equal-weight ETFs as a fix.

What to actually do with this

Moss laid out two concrete moves, and both are worth running through with your own numbers:

1. Add asset classes the S&P 500 underweights. Mid-cap, small-cap, and international ETFs give you exposure to companies that barely register in a market-cap-weighted U.S. large-cap fund. Tony’s proposed mix (S&P 500 at 35%, mid-cap at 15%, small-cap at 10%, international at 15%, and 25% in total US bonds and money market) is the textbook version of this approach.
2. Use equal-weighted ETFs for your large-cap exposure. A fund like RSP weights every S&P 500 component the same, so every single piece is weighted not by the size of the company, but just equally. A single mega-cap can’t pull the fund up or drag it down on its own.
3. Read your fund’s top-10 holdings before you assume diversification. Pull up the fact sheet. If three companies make up almost 20% of your assets, you’re running a concentrated bet whether you meant to or not.

I own NVIDIA and Apple directly, so I’m doubly exposed when my S&P 500 holdings move with them. That was a choice I made with eyes open. The point of the Fidelity letter, and of Moss’s response, is that most index investors never made that choice consciously. If 35% to 40% of your fund’s daily movement comes from 7 stocks, calling it "the 500" is more marketing than math. The fix is simple: own the rest of the market on purpose.