When Diversification Doesn't Feel Diversified

Market concentration has been a frequent topic of discussion over the last few years, but a quote from yesterday's Wall Street Journal particularly caught my attention:

Back in November 2025, I did my own quick analysis of the top holdings in the Vanguard Total Stock Market Index Fund (VTI) and found the top ten positions represented roughly 35% of the fund.

Whether the number is 35%, 40%, or somewhere in between, the broader point remains the same: a significant portion of today's stock market is concentrated in a relatively small number of companies, many of which are heavily tied to technology and artificial intelligence.

One of the primary benefits of index investing is diversification. But when a relatively small number of companies account for a large percentage of returns, investors may have less diversification than they realize.

That doesn't mean index funds are broken.

It doesn't mean the market is headed for trouble.

And it certainly doesn't mean technology companies are bad investments.

But it does raise a reasonable question:

Has my portfolio become more concentrated than I'm comfortable with?

For me, the answer is probably yes.

As a result, I've been making a few adjustments.

Twice a year I perform a consolidated review of all my investment accounts, including my 401(k), IRA, Roth IRA, TSP, HSA, and taxable brokerage accounts.

I compare my actual asset allocation against the targets I established years ago across large-cap stocks, small-cap stocks, international stocks, bonds, and other asset classes.

Over the last several iterations, I've noticed my large-cap holdings gradually drifting above their target allocation.

That's not surprising. Large-cap growth stocks have performed exceptionally well.

In response, I've slowly directed new investments toward bonds, small-cap stocks, and mid-cap stocks.

I've also moved some money into the Vanguard Value ETF (VTV). These are still large companies, but with significantly less exposure to the technology sector and AI-related themes.

I still don't love owning bonds.

They've been frustrating investments over the last several years. But diversification rarely feels exciting. I have to constantly remind myself that the purpose of bonds isn't to win performance contests. It's to reduce risk and provide stability when other assets struggle.

And if I'm being honest, rebalancing hasn't felt particularly rewarding lately.

Had I simply left everything concentrated in large-cap stocks and ignored my allocation targets, I would have made considerably more money over the last few years.

That's the uncomfortable reality of diversification.

When one asset class is outperforming everything else, buying something different often feels like a mistake.

Yet that's exactly when diversification is hardest—and arguably most important.

Nobody knows whether today's market concentration represents a bubble, a permanent shift, or something in between.

Maybe the largest technology companies will continue dominating for another decade.

Maybe they won't.

I have no idea.

What I do know is that my portfolio was gradually drifting away from the allocation I deliberately chose years ago.

Rebalancing wasn't a prediction about the future.

It was simply a return to my plan.

And that's really the lesson here.

It occurs to me now, as it has many times before, that

Most investors can build a reasonable plan. The hard part is sticking with it.

The hard part is staying the course when one asset class is outperforming everything else.

The hard part is continuing to rebalance when it feels like you're moving money away from the winners.

The hard part is remaining patient when your strategy appears to be lagging.

Only time will tell whether my plan ultimately proves successful. But I take comfort in knowing that my recent decisions weren't driven by fear, excitement, or predictions about the future.

They were simply an effort to remain disciplined and follow the plan I established years ago.