NerdWallet's Smart Money Podcast Are Index Funds Still Diversified? Concentration Risk and a Top-Heavy Market
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Feb 19, 2026 Ryan Sterling, a wealth advisor at NerdWallet Wealth Partners who guides clients on diversification and allocation. He explains concentration risk in index funds and how a few mega-cap stocks now dominate the market. Short takes cover historical parallels, how concentration can amplify swings, and practical ways to diversify beyond large-cap U.S. stocks.
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Broaden Asset Classes To Reduce Risk
- Diversify beyond the S&P 500 by adding mid-cap, small-cap, international, emerging markets, bonds, and REITs.
- Ryan Sterling recommends broader allocations to reduce risk of a lost decade.
Avoid Overlapping Index Funds
- Use index funds that each serve a distinct role and avoid overlap among holdings.
- Sterling warns against owning multiple funds (e.g., VTI, SPY, QQQ) with ~90% correlation.
Tilt Toward Non-US And Smaller Caps
- Increase allocations to international, small- and mid-cap, and bonds while considering dividend strategies.
- Sterling highlights valuation disconnects and past periods where non-US and small caps outperformed large caps.