The Evidence‑Based Investor (TEBI)

Why Expected Returns Matter More than Index Concentration

The S&P 500’s top‑seven stocks now represent more than 30% of market value, sparking industry warnings about concentration risk. Academic research shows this level mirrors historic peaks from the 1930s and is a natural outcome of firm‑specific volatility, not a market dysfunction. The real threat is a dramatic compression of expected equity returns, now estimated at only about 1% above inflation‑protected bonds. Valuation‑aware strategies that adjust equity exposure to these low premiums have historically generated far higher wealth than static 60/40 allocations.