Is your index fund actually diversified (especially against tech), or could it drag your portfolio down after one bad week in the tech industry?

Do you know why you’re investing in the S&P 500? Or the Nasdaq? Or the Dow Jones?

Even if you know how those index funds behave, do you understand what’s inside them and why?

Today, we’re covering the what, why, and how of the top index funds out there, so you’ll be able to decide exactly what you want to be exposed to and why that is.

In today’s edition:

🤔 The S&P 500: Diversified, but Not Really
💸 The Dow Jones: Truly Diversified, but Thin
🧑‍💻 The Nasdaq: Tech. Tech companies Everywhere
💰 The Russell 2000: Give the Little Guy a Chance
⚡ Lightning Round: 4 Index Funds to Hedge Against the Rest
🧪 Creating an Index Fund Portfolio

Let’s begin.

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Ah, the S&P 500. Touted for a long time as the best place to put your money and forget about it for decades. And honestly, that strategy would have done quite well for you. If you put any money into it over any meaningful amount of time in the past 100 years (it was originally the S&P 90 in 1924), you’d have sizable returns. $100 invested in 1924 would be $2,984,908.73 in 2025.

Ok, so we all know the S&P 500 has performed well, but what’s in it? Obviously, 500 companies. How are they chosen? Those companies are selected by a committee, and they must meet certain criteria. To be added, companies must have a market cap of at least $14.5 billion, be highly liquid, and have at least 10% of its shares available for public trading. Another key: they need to have been profitable in their most recent earnings report, and the sum of their previous 4 earnings needs to be positive, too (Investopedia).

It’s a pretty good system for trying to ensure investors have the best shot at making gains on their investment in the S&P 500. However, there’s another important question to ask: how is the S&P 500 weighted? We can tell you off the bat, it’s not an equal weighting between all 500 stocks. The way it works is this: stocks with a higher market cap get more weight in the index. The smaller cap stocks have much lower allocations. Typically, that’s been alright in the past, since even at the top, the biggest companies have been diversified across industries. But that’s not so these days. The Magnificent 7 dominate, and they’re all in tech.

This overweighting of tech in the S&P 500 has had two effects: 1) it’s made the S&P a GREAT investment over the past few years as the Magnificent 7 stocks have grown massive, and 2) it has made the S&P a highly concentrated index fund instead of a diversified one. The takeaway? If you’re looking for truly diversified investments, don’t just drop everything into the S&P 500. If you love tech, fire away. Not investment advice, and do your own research. 

Note: A ton of index funds you’ll see on a site like this one that lists the top 100 ETFs by market cap are just funds that track the S&P 500 index. That will be the case for others below, too. That’s because you can’t actually buy shares of an index; you have to buy shares of an index fund that tracks the index itself. Popular Index funds that track the S&P 500 are as follows (it just depends on your preference for provider and fee structure; they’re mostly the same investment otherwise):

The Dow is made up of the 30 most expensive stocks on the market, weighted by price. Note that language: “most expensive.” This means that the more expensive a stock’s price is, the more weight it carries in the Dow Jones index itself (regardless of market cap). So, right now, Goldman Sachs makes up the biggest percentage of the Dow at 8.79%, even though its market cap is only at $239.52 billion. Meanwhile, NVIDIA, with the largest market cap in the world ($4.62 trillion), only sits at 2.02%. That’s because Goldman Sachs share prices are $797.84 each, while NVIDIA shares are “only” $189.93. 

Just because this is a different way of weighting stocks from the S&P 500 doesn’t make it wrong; in fact, it offers a uniquely different way to weight things. However, the Dow is often criticized for only containing 30 companies (versus the S&P’s 500 companies). Interestingly, the criteria for inclusion in the Dow Jones are a lot less strict and… clear than they are for the S&P 500. According to Investopedia: “There are no firm guidelines for including a company in the US 30 or for dropping it… The only criteria are that those included must have an ‘excellent reputation,’ demonstrate ‘sustained growth,’ and be ‘of interest to a large number of investors.’”

We will say, the Dow Jones might not have as many companies as the S&P 500, but it does have a pretty good spread of different industries within its ranks. It’s less Magnificent 7 heavy. If you want a truly diversified play, consider the Dow.

Here are some of the most popular index funds that track the Dow Jones. DIA is actually the only one that directly tracks the dow;:

Most people have heard of this one, and most also know it’s a tech index fund (sounds like the S&P 500, right? Ha).

But did you know that this index contains every equity security listed on the Nasdaq exchange (3,000+ stocks), they’re market-cap weighted, and… the tech industry makes up 63.43% of the Nasdaq by itself?

Now, being that heavily weighted in tech isn’t a bad thing inherently. It’s just something to be aware of. If you’re bullish on tech, you might consider investing in the Nasdaq as a riskier alternative to the S&P 500 (but not as risky as investing in individual tech stocks like NVDA or MSFT).

We know you’ve heard of the Nasdaq 100, too, and that’s just an index of the 100 largest non-financial companies on the Nasdaq exchange. It excludes financial companies because its creators wanted to focus on high-growth companies (i.e., they wanted to focus even more on tech than the Nasdaq already does). So the Nasdaq 100 is an even more risky investment than the Composite because it’s so tech-heavy, but it has higher potential growth for the same reason.

Here are some of the most popular Nasdaq Composite and Nasdaq 100 ETFs:

This index fund is another super popular one that actually hasn’t done too well in recent years (some people blame high interest rates for that. The Russell 2000 index tracks 2,000 of the smallest companies in the Russell 3000 (a broad market index fund). It’s more volatile than the Russell 1000, which tracks the biggest 1,000 companies on the market (imagine that!). 

Why would you want to invest in the Russell 2000? Because small-cap companies give you the opportunity to get higher gains in the long term as they grow. As in, a company with a $200 billion market cap has more growth potential than a company with a $3 trillion market cap. However, that volatility can bite both ways, so the Russell 2000 can drop pretty quickly. 

Also, something to think about: high interest rates affect smaller companies more than larger companies (because larger ones usually have more capital to play with). This means that small-cap companies are less likely to invest in growth when interest rates are high, and are more likely to take out loans for growth when interest rates are down. What’s the Fed done over the past couple months? Lowered rates. What does it look like the Fed might do moving forward, even if it doesn’t happen in December specifically? Lower rates. Just saying.

Here are some of the most popular Russell 2000 index funds; they mainly just have differing expense ratios and providers, which you can see here:

Those are some of the heavy hitters, but what about other index funds? Especially funds that might help you hedge against AI in case the bubble pops unexpectedly? Here are some ideas.

Note: We aren’t bearish on AI, we just think it’s smart to hedge against your big bets, especially with something as big as AI. Not financial advice, and do your own research.

Now, most people would just use index funds as a strong base for their portfolio and then branch out into individual stocks or other assets from there. But, if you wanted to, you could make a portfolio entirely out of index funds. This isn’t financial advice, but here’s what an aggressive, tech-bullish index fund portfolio might look like:

You may look at this and think we’re crazy, but we don’t think we’d be too upset with this portfolio overall. Of course, there are a million more ways to change this and tweak this, but this is more just a thought experiment than anything.

Index funds are amazing tools, and they can be a great way to diversify your portfolio. However, it’s important to bear in mind that not every index fund is equally diverse. And that can be a good or bad thing, depending on how well you understand them.

Like tech? Then the S&P 500 and Nasdaq might be for you. Want to truly get a diversified investment in your portfolio? Maybe consider the Dow Jones. Want to specifically hedge against tech? Take a look at the ETFs in our lightning round section above. It’s up to you how you build your portfolio; the key is having the right information.

That’s all for today’s special edition. We hope you got value from it. Reply and let us know if you did. 

Until next week,

— Brandon & Blake