AI Is Making Me Rethink How to Invest

I want to be upfront about what this post is and is not. It is not a prediction about where AI stocks are headed, I don’t know, and anyone who tells you they do know with certainty is not being straight with you. It is a genuine, personal reflection on something that has been sitting in the back of my mind as I look at portfolios, including my own thinking around client portfolios: what does real diversification mean when a small number of very large companies make up such a large share of the index everyone assumes is “diversified”?

The problem in plain terms

For years, the advice to “just buy a broad market index fund” has been sound, low cost, diversified, exposed to the growth of the overall economy rather than any single company’s fortunes. That advice still has a lot going for it. But it is worth understanding what you actually own when you hold a broad market index today.

Many popular global and US indices are weighted by market capitalisation, meaning the biggest companies make up the biggest slice. Over recent years, a relatively small group of very large technology and AI-related companies has come to represent a significant, concentrated portion of some of the world’s major indices. So when someone says “I’m diversified, I just hold an index fund,” it is worth asking a genuine question: diversified across how many companies in substance, versus diversified across how many companies on paper?

This is not a criticism of index investing as a strategy. It is an observation that the composition of “the market” itself has shifted, and that shift deserves attention rather than being taken for granted.

Why I’m not reacting by chasing or avoiding

The tempting reaction here comes in two flavours, and I think both are mistakes.

The first is to chase the theme, to conclude that if these companies are driving returns, the smart move is to load up further on them, or on AI-focused funds, hoping the trend continues. That is speculation dressed up as strategy. Concentrated bets can work out, and they can also go the other way hard, and nobody has a reliable way of knowing in advance which it will be.

The second is to overcorrect out of fear, to decide index funds are suddenly “too risky” because of this concentration and abandon a sound long-term strategy for something that feels safer but is really just a different, less examined set of assumptions.

Neither of those is a plan. Both are reactions.

What I’m actually doing instead

What this has genuinely done is push me to think more carefully, for myself and in how I think about client portfolios, about a few specific questions:

• How much genuine diversification does a portfolio have, not just by number of holdings, but by how correlated those holdings are likely to be if a specific sector has a rough period?
• Are there sensible ways to broaden exposure, across regions, company sizes, and sectors, so that the portfolio is not unintentionally making an oversized bet on one theme just because that theme happens to dominate a popular index right now?
• Does the portfolio still match the actual goals and time horizon it was built for, rather than drifting toward whatever has performed well lately? Concentration risk creeps in quietly, through performance, not through anyone actively deciding to take it on.

None of this means abandoning index funds or broad market investing, they remain a sensible, low cost core for most people’s portfolios. It means being deliberate about how that core is built and what sits alongside it, rather than assuming “an index fund” automatically means “properly diversified” without checking what is actually inside it.

The conclusion I keep landing on

Every time I turn this over, I arrive back at the same, slightly unglamorous conclusion: this is a reason to have a properly considered plan, not a reason to make a bold move based on a theme in the headlines. A good plan accounts for concentration risk as one input among many, alongside your goals, your time horizon, and your tolerance for volatility. It does not try to predict which sector wins next.

If you have looked at your own portfolio and are not sure how concentrated it really is, or whether it still matches what you are actually trying to achieve, that is a worthwhile thing to sit down and review properly. Book a free discovery session and we can take an honest look together.