Author: Andrew Pierce

The index your fund tracks is a document, and the document has an owner. In 2025, S&P Global’s Indices segment collected $1,206 million in asset-linked fees from the funds tracking its rules. Your expense ratio carries that licence, and it is the only figure in this arrangement disclosed before you invest.

Paying rent on a list you did not write

An index is not a market. It is a rulebook: which securities qualify, how each one is weighted, when the list gets rebuilt. A company writes that rulebook, publishes it, and licenses it to fund sponsors.

The scale of that business is disclosed. Indices segment revenue for 2025 was $1,850 million, per the S&P Global 10-K filed in February 2026. Asset-linked fees supplied $1,206 million of it, or about 65%. That line scales with balances rather than with effort.

So the first thing an index fund buys on your behalf is compliance with somebody else’s document. No portfolio manager picks the holdings. A rule does, and the rule is a commercial product with a price on it.

Copying a list without buying every name on it

Tracking sounds mechanical. Two funds run by the same firm show what it actually involves.

Fidelity Total Market Index Fund follows the Dow Jones U.S. Total Stock Market Index. Its summary prospectus says the fund uses “statistical sampling techniques” to “attempt to replicate the returns” of that index. Total annual operating expenses run 0.015%. Attempt is the operative word.

Sampling means the fund holds a subset chosen to behave like the whole. A subset will not behave identically. The gap between what the fund returned and what the index returned is tracking difference. It is measured over a real period, after the fact.

Tracking error is a separate statistic. It measures how much that gap wobbles from period to period, not how large it was. A fund can lag its index steadily. That is low tracking error and a negative tracking difference at once.

Fees, trading costs and the sampling method all push on tracking difference. Only one of the three is printed on the front page of the prospectus.

Handing 0.64% to a fund for thirty years

Now the arithmetic, and the growth rate has to be declared. The rate used here is the 10-year Treasury constant maturity yield, 4.77% on September 3, 2026. It comes from the Federal Reserve’s H.15 release of the following day. That figure is a labelled risk-free rate, and nothing here forecasts what stocks return.

The wider spread is where the money is. The Investment Company Institute, an industry association, published 2025 asset-weighted averages in March 2026. Index equity mutual funds averaged 0.05%; actively managed equity mutual funds averaged 0.64%. The distance between those two is the whole argument.

Start with $100,000, which is illustrative. Subtract each fee level from that growth rate and compound for thirty years.

Annual fee	Whose figure it is	Balance after 30 years
0.00%	Fidelity ZERO Total Market Index Fund	$404,677
0.015%	Fidelity Total Market Index Fund	$402,942
0.05%	Index equity mutual funds, asset-weighted average	$398,923
0.64%	Actively managed equity mutual funds, asset-weighted average	$336,726

Growth rate: 10-year Treasury constant maturity yield of 4.77%, observation of September 3, 2026, Federal Reserve H.15 released September 4, 2026 – a risk-free rate, not a market expectation. Fund expense ratios from the SEC-filed summary prospectuses dated December 30, 2025 and April 29, 2026. The 0.05% and 0.64% averages are 2025 asset-weighted figures from the Investment Company Institute, an industry association, in ‘Trends in the Expenses and Fees of Funds, 2025,’ published March 2026. The $100,000 starting balance is illustrative.

The zero-fee row reaches $404,677. The 0.64% row reaches $336,726, or $67,951 less. That is 16.8% of the ending balance, accounted for by a difference of sixty-four basis points a year.

Here is the part that keeps the exercise honest. The ending balances are entirely a function of the growth rate. Change 4.77% and every dollar figure in the table moves with it. The 16.8% barely moves at all.

Run the identical table at 2% and the share is 17.2%. At 8% it is 16.3%. Neither of those rates is a forecast; they are arbitrary stress values, chosen only to show that the share does not depend on the growth rate. The ratio between two fee levels is the finding. The balance is scaffolding.

Owning the rulebook is what lets a fee reach 0.00%

Fidelity ZERO Total Market Index Fund reports total annual operating expenses of 0.00%. It does not follow a Dow Jones index. It follows the Fidelity U.S. Total Investable Market Index, built in-house on what the prospectus calls “a rules-based proprietary index methodology.”

Write the rulebook yourself and there is no licence to pay. That is not the sole reason a fee lands at zero. It does delete one line from the cost stack, the same line S&P Global books as revenue.

Each fund above appears as a documented fee level. Inside an index fund, as the first section set out, a published rule has already settled the holdings question.

That leaves the wrapper. A fund is what you hold. An account is where you hold it. That second choice runs on tax rules, and the traditional-versus-Roth decision turns on something else entirely.

The thirty-year figures compound an illustrative $100,000 at a labelled risk-free rate and vary only the expense ratio, so they isolate fee drag and forecast no return; the funds named appear as documented fee levels and none of them is a recommendation to buy, the ratios are quoted from prospectuses on the dates given and can be revised, an index fund carries the full market risk of the index it follows, tracking difference means a fund’s result will not equal that index’s, and in a taxable account distributions and index turnover both change what a holder keeps.

Ask most people what it means to own an S&P 500 index fund. They’ll describe something close to a settled bet: five hundred companies, spread across every major industry, no single name doing much on its own. That description is getting harder to defend. S&P 500 concentration risk is now at its highest level on record. A small group of AI-linked mega-caps is driving almost all of it. If you own a broad index fund and call yourself diversified, it’s worth understanding what that word means today.

What Concentration Means, Mechanically

The S&P 500 is not weighted by company count. It’s weighted by market value. Bigger companies get a bigger slice of the index. Every dollar you put into a fund tracking it follows that same split, automatically.

That has a quiet consequence. When a handful of companies grow much faster than the other 490-plus, they don’t just get bigger inside the index. They pull more of your money along with them, whether you chose that exposure or not. A fund can keep its name, its ticker, and its reputation for diversification. Its actual makeup can shift underneath you anyway.

How Big Is the S&P 500 Concentration Risk Right Now

As of May 2026, the ten largest companies in the S&P 500 made up roughly 40% of the index’s total weight, according to asset manager VanEck. A decade earlier, in 2016, those same ten spots held about 18%. The wealth-management firm RBC Wealth Management puts the more recent figure at roughly 41%, as of the end of 2025. That’s the highest concentration level RBC has on record for the index.

Some rough milestones, drawn from RBC’s data, help place that number. Around 1990, the top ten held about 19% of the index. At the peak of the dot-com bubble in 2000, concentration climbed to roughly 23% by year end. By 2015, concentration had drifted back down to about 19% of both weight and earnings. From there it has more than doubled in a single decade. RBC describes that rise as a surge to historic levels.

Is This Just a Repeat of the Dot-Com Bubble?

It’s tempting to draw a straight line from today’s AI-driven concentration to 2000. The comparison isn’t baseless. Today’s top-ten weight sits well above that era’s peak. But the parallel has real limits. The dot-com leaders were often pre-revenue companies trading on narrative alone. Today’s largest holdings are, by and large, deeply profitable businesses with substantial cash flow. That’s a genuinely different starting point. Reasonable analysts disagree on how much comfort that difference should offer. Neither view is settled.

One point isn’t really in dispute, though. It’s the mechanical one that FINRA, the securities industry’s self-regulator, makes about concentration risk in general. FINRA defines it as the risk of amplified losses from holding a large portion of your money in one investment, asset class or market segment. The same arithmetic amplifies gains. That holds whether the companies involved are speculative or genuinely excellent.

Questions Worth Asking Your Portfolio

None of this points toward a specific action. It points toward a few questions worth sitting with. What share of a portfolio, across every account, sits in its ten largest underlying holdings? When an “international” fund and an S&P 500 fund lean on the same handful of companies, how much diversification does holding both add? The SEC’s own investor guidance makes this same point. A fund’s name doesn’t guarantee diversification, and a fund’s top holdings are published in its own documents.

These questions don’t have one correct answer. Someone with decades until retirement may reasonably shrug at this concentration. Someone closer to drawing on their portfolio may weigh it differently. What a fund holds today can differ from what its name or its reputation implies.

The concentration figures are index weights as of the dates their sources give, and they move as the index does; how much of any one portfolio sits in those same companies depends on the funds it holds, and no stock or fund is named here to buy, sell or hold.