The Risk Most Investors Aren’t Watching Right Now

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Today, I’m opening the gates to The Citadel — the premium membership for The Wealth Expedition — and because you’re a newsletter subscriber…

I’m offering you access to ONE FREE MONTH.

This isn’t just another trial.

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• In your first week, you’ll know exactly where you are on your wealth journey and what steps to take next.

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Who this is for:

• Professionals ready to take control of their finances.

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This opportunity is temporary. The window to claim your free month closes soon.

Ready to take the next step?

1. Start your journey today.

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This is your chance to move from uncertainty to mastery. To stop wondering if you’re making the right decisions and start taking action with confidence.

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Have a great week everyone. And enjoy the following insights on current market conditions—and how you can prepare.

Onward together,

Daniel

What Is Stock Market Concentration Risk?

Stock prices are high right now. But that alone isn’t unusual.

Markets that grow over time will almost always reach new all-time highs. That’s normal. What makes today different isn’t the level of the market—it’s the concentration inside the market.

Historically, when the top 10 stocks in the S&P 500 make up more than about 19% of the index, risk begins to rise in less obvious ways.

As of this writing, those top 10 stocks account for nearly 39% of the entire index.

That’s not common.

Research from Bill Pauley, CFA, Kevin Bales, CFA, and Adam Schreiber, CFA, CAIA shows that the only other times concentration reached similar levels were:

• August 2020, during the post-shutdown rebound

• The year 2000, before the market lost nearly half its value

To put this in perspective: if the top 10 stocks continued growing at their pace from the last decade, they would make up roughly 73% of the S&P 500 ten years from now. That outcome isn’t realistic—and markets rarely reward extremes indefinitely.

What Valuations Are Telling Us

Another lens worth considering is the Shiller P/E ratio. It’s not a timing tool, but historically, higher levels have been associated with lower 10-year forward returns.

Today, the Shiller P/E sits around 40.6.

For comparison:

• Average from 2016–2025: ~31

• Average from 2006–2015: ~23

That places today’s market at roughly 1.3x its recent norm.

Yes, AI and technological efficiency may justify somewhat higher valuations. But so far, earnings haven’t kept pace with prices. Unless earnings accelerate dramatically, history suggests that valuations eventually normalize—either through slower price growth, strong earnings growth, or market declines.

Bottom line: the market is expensive, and it’s concentrated.

The Goal Isn’t to Be Right

At The Wealth Expedition, the goal isn’t to perfectly time the next downturn—an impossible feat to execute consistently.

Markets can remain expensive longer than expected. Concentration can persist. This imbalance could resolve itself without a major downturn—through flat returns, earnings growth, or sector rotation.

Rather than staking your future on being right or wrong, the smarter move is to position your portfolio so multiple outcomes are survivable.

That’s where historical patterns help—not as indications of future performance, but as probability guides.

What History Suggests About Concentration Risk

The same research examined market behavior from 1964 through 2024, focusing on what happened over the next five years after concentration reached elevated levels.

Here’s what they found:

• When the top 10 stocks made up 23.4%–39.9%, the lower 490 stocks outperformed 88% of the time.

• When concentration was 18.8%–23.4%, the lower 490 stocks outperformed 80% of the time.

• Only when the top 10 made up less than ~18.8% did the top 10 tend to outperform the rest of the market more often than not.

The pattern is clear: the more concentrated the market becomes, the more fragile leadership tends to be.

This doesn’t mean the top stocks will crash tomorrow. It means that relying on them exclusively becomes statistically less favorable over time.

How to Monitor Market Concentration Yourself

Monitoring market concentration for yourself is as simple as checking the top 10 holdings of the SPDR S&P 500 ETF (SPY), which attempts to match the performance of the S&P 500. Its fact sheet lists each holding and its percentage weight.

Add the top 10 together, and you’ll know how concentrated the market currently is.

That single number can give you valuable context.

Practical Ways to Manage Concentration Risk

When concentration approaches historical extremes, here are a few ways investors can respond—without abandoning long-term growth:

1. Use equal-weighted exposure
   Equal-weight strategies reduce dependence on a handful of dominant stocks and allow broader participation if leadership rotates.

2. Hedge selectively, not emotionally
   Protective put options can reduce downside risk during major drawdowns, without forcing you out of the market entirely. Options are risky and should only be considered by those who fully understand how they work.

3. Broaden your index exposure
   Funds like the Russell 3000 still include large companies—but with less extreme concentration than the S&P 500.

4. Incorporate an all-weather framework
   Portfolios designed to perform across multiple economic regimes can help smooth outcomes when uncertainty is elevated.

None of these require predicting a crash. They simply acknowledge that risk changes as markets change.

Final Thought

The real danger isn’t investing at all-time highs.

It’s assuming today’s market structure will persist forever—and positioning your entire financial future around that assumption.

Markets move in cycles. Leadership rotates. Valuations normalize.

Your job isn’t to time those shifts—it’s to build a portfolio resilient enough to survive them, while still participating in long-term growth.

That’s how you stay on course, no matter where the market goes next.

Your Next Step on the Wealth Expedition — When You’re Ready

For deeper insights into market cycles, portfolio construction, and real-time investment decisions, here are three ways to continue:

1. Join The Wealth Expedition Membership

Inside The Citadel membership, you’ll be given the tools to do-it-yourself and build your personal investment portfolio using strategies shared on the dashboard. You’ll gain clarity on where you are on your own financial journey, where you’re going, and how to get there.

2. Get personalized financial planning

If you want help evaluating your current allocation, understanding your exposure to market concentration, and identifying practical ways to reduce portfolio risk without derailing long-term returns, I offer personalized planning and portfolio reviews.
Write me to schedule a free discovery call to get clarity before making your next major financial move.

Markets will always move in cycles.
The goal isn't to predict them perfectly—it's to position yourself so no single outcome can derail your Wealth Expedition.

Daniel Lancaster, CFA

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