1. Introduction & Hosts

Madison: Hello, everyone, and welcome to Not Just Numbers, Honest Conversations with a Financial Advisor and Lawyer. I am Madison Demora, and I’m here with Mike Garry. Mike is a financial advisor and a CFP practitioner and the founder and the CEO of Yardley Wealth Management. He is also an estate planning lawyer, and his law firm is Yardley Estate Planning. Hi, Mike.

Mike: Hey, Maddie. How are you?

Madison: I’m, good. How are you doing today?

Mike: Good. I walked the dogs at 6:15 and it wasn’t freezing. It was 33, but it wasn’t freezing.

2. What Does Diversification Mean?

Madison: So today we’re talking about something that I think a lot of investors assume they already understand, which is index funds and diversification. There was a recent New York Times article by Jeff Sommer called “Your ‘Safe’ Stock Funds May Be Riskier Than You Think,” and it really changes the idea that just owning a broad U.S. index fund automatically means you’re well diversified. This article was forwarded to us by a client. So, Mike, let’s start really basic. When people hear the word diversification, especially in investing, what do they usually think it means?

Mike: So most people think diversification means, “I own a lot of stocks, so I’m spread out.” And for a long time, buying something like an S&P 500 or a total U.S. market index did sort of accomplish that goal, at least in the eyes of many people. Now, we have long favored a globally diversified portfolio, as our listeners know, but we’ll get into that later. The issue, and what this article points out, is that diversification isn’t just about the number of stocks you own. It’s about how much risk is tied to any one company, sector, or country. So, two quick asides. The first one, this article was referred to us by a client we’ve known for a real long time, and he knows who he is, I’m sure, so, thanks for that. And the other is, we want to show you how things have changed. So, I was a finance major when I was getting my undergrad Finance degree, a long, long time ago, there were people who seriously claimed that you could be diversified with as few as 15 stocks. So that’s ludicrous and thankfully we have come a long way, but you could see how 40 years ago, owning the S&P would be a big step toward greater diversification, right?

Madison: Right.

Mike: You know, 500 is way more diversified than 15.

Madison: That’s true. So why do index funds feel so safe to people? They’re almost marketed that way.

3. Why Index Funds Feel “Safe”

Mike: Yeah, they are. And you know, for good reasons. Index funds are low-cost, rules based, transparent, and historically effective over long periods of time. They have also had great returns, especially lately, and most financial pundits write good things about them. But “safe” doesn’t mean low volatility or low risk, especially if your entire portfolio depends on one market behaving well at the exact time you need money. In this case, I think “safe” means, like, commonly accept it rather than financially safe. It’s a safe choice because, like smart people say, “you should own index funds.” A U.S. S&P 500 or total market index fund is a great start to a portfolio, and maybe people might have or should have 20% to 40% invested there, but there are a lot of other places or asset classes in which to invest.

4. Market Concentration in U.S. Stocks

Madison: One of the biggest points in the article is how concentrated the U.S. stock market has become. Can you explain what that actually means?

Mike: Sure. Today, a handful of very large tech companies, Nvidia, which did anybody hear that 10 years ago? But Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, and Tesla, make up a massive percentage of the entire U.S. market. And at the end of 2025, you know, seven weeks ago, just four stocks alone made up more than 26% of the S&P 500. That means over a quarter of your “diversified” index fund performance depends on how a few companies do. By the SEC’s legal definition, many broad U.S. index funds are now considered non-diversified. Not because the funds changed or the rules did, but because the market did.

5. The Risk People Are Missing

Madison: So, if someone says, “I own the S&P 500, I’m, diversified,” what’s the risk they’re missing?

Mike: Well, the risk is concentration and timing. If those largest companies stumble at the same time you’re relying on your portfolio, whether you’re retiring, taking withdrawals, or rebalancing, the impact can be much larger than people expect. When markets are top-heavy, downturns tend to hurt more and recoveries can be uneven. In a recent article, Jason Zweig, who I’m otherwise a big fan of, says this doesn’t really matter because at, the start of a great bull market in 1932, AT&T accounted for 12% of the market and the market still did really, really well. I’d say, you know, to counter that argument, I’d say that was from the bottom of the worst crash of all time. And stocks that didn’t go completely bust were down like 80% or 90% from their highs and AT&T was a literal monopoly. So right now, U.S. stocks are near all-time highs, and while those stocks may feel like monopolies or duopolies, legally, they aren’t. And I think that historical difference might matter here.

6. Market Volatility & Historical Context

Madison: I want to ground this in history for a moment, because I think people forget how volatile the market can be. The S&P 500 went down about 50% twice in one decade. Is that right?

Mike: That is right. So, from 2000 to 2002, during the dot-com bust. And again in 2008 to 2009, during the great financial crisis. So those weren’t small pullbacks, 50%, those were life-changing declines for people who were heavily invested and withdrawing money. That was an entire decade where the average return from U.S. stocks was negative.

7. The Year 2000 Investor Example

Madison: There’s an example we often talk about internally that really sticks with people. If someone started investing on January 1st, 2000 and put 100% of their money in the S&P 500, and needed 5% annual withdrawals adjusted for inflation, what happens?

Mike: They would have run out of money by 2016, right? They would have run out of money. And that shocks people, because they’re told the S&P 500 “averages” around 10% per year. But averages don’t matter when withdrawals are happening during major downturns. One of the things that people don’t typically understand with the S&P 500 is that average is a really broad average. So, how do I say this.. The average is 10% but the standard deviation is 20 points. So, like two thirds of the time the market is either down, you know, 20 points from that or like minus 10 or above 20, so 30. So, two thirds of the time the returns for the market are, you know, not 10%, but between minus 10 and plus 30 and then another third of the time they’re outside of those. So, worse or better than those. So, at 10%, I think randomly, statistically has actually happened like one or two times in the hundred years. So, it really is an average that’s kind of meaningless. And so, there are, you know, there’s something called sequence of returns risk, and concentration makes it worse. You know, I’d also like to add that from the same market top in March of 2000, the NASDAQ lost over 80% of its value and took almost 16 years to recover, so, that’s 2016. I know a lot of people have a lot of unrealized gains in QQQ, which tracks the largest non-financial NASDAQ stocks and SPY, which is the largest ETF that has the S&P 500. So, a lot of people have those with a lot of unrealized gains and are reluctant to diversify because they don’t want to pay taxes. But if you aren’t diversified, you may really regret it. You know, if you have those big positions, picture you know, one of them going down by 85% and picture the other one going down by 50%, recovering for a few years, and they go down by 50% again. Meanwhile, during that so-called “lost decade” for stocks from 2000 to 2010, a globally diversified portfolio returned about 4% to 6% per year during that time depending on the exact asset allocation and the amount of bonds in the portfolio. So those were portfolios that we were managing there at this company and my previous one. So not great in absolute terms, but much better than the alternative. Also from that example above, if someone put their money in a globally diversified portfolio on 1/1/2000 and took out 5% adjusted for inflation, they would not only have not run out of money, but have had a multiple of what they started with, again depending on the amount of bonds in their portfolio, and the percentages of each asset class. It is amazing to me how quickly people forget when it comes to investing. I think buying The S&P 500 is cheap, easy, often has great returns, it’s touted all the time in the press, seems like it hits all the buttons and that’s why people think it’s safe. Again, in my opinion, it’s a good first step in building a portfolio, It’s not a portfolio.

8. Why “Just Stay Invested” Doesn’t Work for Everyone

Madison: So, people often hear “just stay invested, it always comes back.” Why doesn’t that advice work for everyone?

Mike: It works great if you don’t need the money, right? But you know, once you are retired, your time frame shortens down and retirees and near-retirees don’t have the luxury of waiting 10 or 15 years for recovery while still taking income. If you’re pulling money out during a 40% to 50% drawdown, you’re locking in losses. That’s why, you know, diversification isn’t just some academic exercise. It’s practical and meaningful and it’s really important.

9. Index Funds Aren’t Being Abandoned

Madison: I think it’s really important to clarify, this article isn’t saying people should abandon index funds or avoid stocks altogether. Right?

Mike: Right, exactly. I mean the author is very clear about that, and I totally agree. Index funds are still an excellent tool. Stocks are still important for long-term growth. The takeaway isn’t “don’t invest in the U.S.” it’s don’t invest in just the U.S.

10. What Proper Diversification Looks Like Today

Madison: So, let’s talk about solutions. What does proper diversification actually look like today?

Mike: Sure. So, it means U.S. stocks, international stocks, small company stocks in both U.S. and international, emerging market stocks, small emerging markets, REITs which is a real estate investment trust, bonds, cash or short-term reserves, and value stocks. Right. Because, you know, the S&P 500 tends to be a growth index fund. So global diversification matters because markets don’t all move together. There are long stretches where international stocks outperform U.S. stocks, and vice versa. You know, we don’t have the results yet for this decade because we’re only at the start of 2026. But for the previous 12 decades, the international funds beat U.S. funds half the time. 6 out of the 12. If you’re only invested in one country, you’re making a very big bet. And I don’t think it’s a good idea.

11. Why This Conversation Matters Right Now

Madison: So, why is this conversation especially important right now?

Mike: Because the market concentration is extreme by historical standards. When leadership is narrow, when just a few companies drive returns, portfolios become fragile. If those “big trees fall,” as the article says, the whole forest shakes. Diversification is the shock absorber.

12. Takeaway for Listeners

Madison: So, if someone listening feels uncomfortable with hearing this, like maybe they thought they were doing everything right, what would you want them to take away?

Mike: But first, you didn’t do anything wrong, like, owning the S&P 500, a total market index is a great first step, you know, but, you know, the advice changed because the market changed. We know more than we used to. And second, diversification isn’t about chasing performance. I’m not saying invest internationally just because the last few months or the last year international emerging markets have crushed U.S. We’ve been pounding the drum on it forever, and people probably thought we were nuts as the U.S. was trouncing foreign, but, you know, it’s all about building a portfolio that can survive different environments. You know, a globally diversified portfolio isn’t about being pessimistic. It’s about being prepared and optimistic, I think. You know, there’s a whole big world out there to invest in, and it makes a lot of sense for your portfolio and your peace of mind. It’s a good thing.

Madison: That’s such an important point. Index funds are still powerful tools, but they’re not a complete plan by themselves. There are many markets to invest in and having funds in multiple different index funds is very different than just owning an index funds of large U.S. stocks. Mike, thanks for walking us through this. And for everyone listening, if you want to help understanding how diversified your portfolio really is, especially as you’re getting closer to retirement, that’s exactly the kind of conversations we would love to have. Thanks, Mike.

Mike: Thanks, Maddie. Hey, this was a great topic and I like the structure of it. It really allowed me to get some rants in there, which I appreciate on a Monday morning. Tuesday morning, we had off yesterday.

Madison: Yes.

13. Closing & Contact Information

Madison: For more information on Yardley Wealth Management or Yardley Estate Planning, you can visit our websites at yardleywealth.net and yardleyestate.net. You can also follow us on socials at Yardley Wealth Management. Don’t forget to subscribe to our YouTube channel. This podcast has been produced by Madison Demora and Mike Garry with technical and artistic help from Poe Productions.