S&P 500 Near Record Highs Spur Calls to Rethink Passive Investment Strategy

Even as a federal government shutdown loomed, the S&P 500 kept surging to new all-time highs. The index, which tracks large-cap U.S. equities, has soared nearly 90% since the current bull market began three years ago, driven in part by advances in artificial intelligence, according to Morgan Stanley Wealth Management. Yet, some financial experts warn that investors should reconsider the long-popular “set-it-and-forget-it” approach tied to the index.

“The S&P 500 is broken,” said Michael DeMassa, certified financial planner and founder of Forza Wealth Management in Sarasota, Florida. DeMassa cautioned that investors often mistake the index for true diversification. Because the S&P 500 is market capitalization-weighted, performance is heavily influenced by a few large companies — particularly in the technology sector — which can amplify volatility across the entire index.

People checking a stock report | Source: Pexels

Deva Panambur, founder of Sarsi LLC in New York, noted that while the S&P 500 has historically delivered strong long-term returns, it has also faced extended downturns. “Between 2000 and 2008, the S&P 500 was down by more than 30%,” he said. “Occasionally the index suffers long periods of underperformance.”

To reduce concentration risk, experts recommend broader exposure. Brendan McCann, associate manager research analyst at Morningstar, suggested total market index funds, which include small- and mid-cap stocks alongside large-cap holdings. Other options include extended market ETFs or equal-weighted S&P 500 funds, though the latter may involve higher rebalancing costs.