Please stay tuned for important disclosure information at the conclusion of this episode.

Welcome to Investing Insights. I'm your host, Sarah Hansen, filling in for Ivana Hampton today.

One of the busiest terms on Wall Street right now is concentration. For the past two years,

the lion's share of the stock market's returns have been generated by just a handful of

mega-cap tech companies. A highly concentrated market like this can and has turbocharged returns,

but it also carries downside risks. Here to walk us through what it all means for investors is

Dominic Papillardo, chief multi-asset strategists for Morning Star Wealth, which is part of a registered

investment advisor, Morning Star Investment Management. Well, Dom, thank you so much for being here.

Great to be here, Sarah. Thanks for having me. So let's talk about concentration risk. What do strategists mean

when they say concentration risk? Yeah, it's a topic that comes up every so often, and really the

crux of it is that the largest names in the stock market indices have built up to represent an outsized

portion of the index.

So, for example, the S&P 500, 500 names in the index right now, the top 10 companies make up

roughly 40% of the market cap of that index.

So when an investor buys what they believe and what is advertised as a diversified index is really not as diversified

as they might expect it to be. So we have a pretty concentrated narrow market today.

You know, we mentioned tech stocks at the beginning. How did we get here? What forces brought us to

this point? Yeah, it's an interesting set of circumstances that has to materialize.

And it's really a function of those largest names have dramatically outperformed the broad

market over the last, let's say, post-pandemic period.

And as their market value increases, the stock price is going up, they represent a larger

and larger share of whatever market

...