What the Magnificent Seven dominating the S&P means for investors
Investors who buy S&P 500 index funds sometimes worry about how top-heavy the index is -- a logical concern given that seven companies contribute more than a third of the S&P 500's value.
These companies make up such a large portion of the S&P 500 due to their exceptional success in recent years. Anyone invested in the S&P 500 has shared in that success, so there are advantages to the Magnificent Seven's dominance.
However, the Magnificent Seven don’t come without risks, as seen in 2022. There are a few notable causes for concern, in particular:
- The group is dominated by tech stocks and stocks that are more volatile than the S&P 500 as a whole.
- As a result, the Magnificent Seven are more heavily impacted by bear markets and downturns in the tech sector. Either of those situations will likely drag down the performance of the S&P 500 compared to more equally weighted indexes.
- Growth for the Magnificent Seven could slow due to the size of these companies. Case in point, although the group as a whole outperformed the broader market in 2025, only two of the seven (Alphabet and Nvidia) surpassed the S&P 500's return.
It's possible that the Magnificent Seven will continue their success. Even if some of them fall off, other stocks in the S&P 500 will take their place.
S&P 500 index funds remain a simple and effective way to invest in stocks. If you'd like to diversify your portfolio more, you could opt for a different index fund, a combination of funds, or a self-managed portfolio of companies you select. As the success of the Magnificent Seven shows, it is possible to get market-beating returns by picking quality stocks.
