He Thinks His $500,000 S&P 500 401(k) Protects Him From Big Losses. Just 10 Holdings Make Up Nearly 40% of the Fund. A 25% Drop Could Cost Him Almost $49,000 Gerelyn Terzo Wed, November 11, 2026 at 4:27 PM EST 6 min read VOO +1.36% NVDA +3.41% ^GSPC +1.31% GS +1.83% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
An S&P 500 fund like VOO is cap-weighted, so its 10 largest holdings, led by AI giants like NVDA, make up about 39% of assets.
A 25% drop in those top 10 holdings would cost a $500,000 account about $49,000, equal to two years of 4% retirement withdrawals.
Target-date and growth funds often hold the same megacaps, so readers should total their true top-10 exposure, check overlap, and rebalance inside the 401(k).
The biggest 401k decisions tend to get made once and never revisited: when to roll it over, what to hold inside it, and when to start taking money out. That is exactly what the report: 401k & IRA Tips and Answers was created to address, and it is free today. Read more here. (Sponsor)
Consider a hypothetical 58-year-old with $500,000 in an S&P 500 index fund inside his 401(k). He figures that owning hundreds of companies protects him from any single collapse. Financial reporting on AI investment concerns puts that belief to the test, and so have the past few weeks of trading.
The Nasdaq has rebounded from its recent lows but still posted another weekly decline in early November. Bloomberg described Goldman Sachs (NYSE:GS) traders taking calls from investors seeking answers to an AI rout. The VIX, Wall Street's fear gauge, jumped to 28 on November 5 and has since fallen to about 19, suggesting that investors are less worried about near-term market volatility, though the risk hasn't disappeared.
An S&P 500 fund like the Vanguard S&P 500 ETF (NYSEARCA:VOO) weights each company by its market value. Bigger companies get bigger slices. Each new dollar you contribute follows those same weights.
For many Americans, funding a 401(k) only leads to more retirement questions. Should you roll your 401k into an IRA, and when? What's the tax impact if the rollover check gets made out to the wrong name? When do required withdrawals begin, and how much do you have to take?
Fisher Investments put the answers in one place. 401k & IRA Tips and Answers is free, and it covers rollovers, contribution limits, required withdrawals, and what actually belongs inside the account once the balance gets serious. Read More Here ›
NVIDIA (NASDAQ:NVDA) has a market value of about $4.1 trillion. It takes up a far larger share of the index than hundreds of smaller members. Its beta is about 2.2, a measure of how strongly the stock has historically responded to market movements. When companies like that dominate the top of the fund, the fund's results depend heavily on how a single theme performs.
Strong gains made the index even more top-heavy. VOO is up about 11% this year and roughly 74% over five years, including reinvested dividends. As the biggest winners grow, they account for more of your balance. As they grow, you never have to place a trade for that to happen.
VOO's 10 largest holdings accounted for 39.1% of its assets as of September 30, 2026. On a $500,000 balance, that means about $195,500 rides on just 10 holdings.
If those 10 holdings fall 25% and the others stay flat, the account loses about $48,900. That's nearly 10% of his entire 401(k), from just 10 holdings in a fund that owns hundreds.
The real-world consequences could be worse. In a broad selloff, other holdings may fall alongside the AI giants, including suppliers, utilities serving data centers and other technology leaders.
For someone close to retirement, the timing makes this worse. A 4% withdrawal on his balance is $20,000 a year. The nearly $49,000 loss would equal more than two years of his planned $20,000 annual withdrawals, even before he takes his first distribution. Early market losses do more lasting damage. A bad market in the first years of withdrawals is worse than one a decade in, which is the whole subject of our free guide to defending the first five years.
Real diversification means owning assets that don't all fall for the same reason. Many 401(k) menus make overlap easy. The U.S. stock portion of a target-date fund usually tracks a broad index led by the same megacaps. A large-cap growth fund often holds them at even heavier weights, and if you pair either one with an S&P 500 fund, your exposure to those top names goes up.
Target-date funds took in 64% of plan contribution dollars at Vanguard in 2024. Many savers combine them with other funds on the menu, which stacks the same exposure on top of itself.
Allocation matters too. Fidelity found that 7% of savers in their 50s have every dollar in stocks. Vanguard's participants age 65 or older held a median of 50% in equities. Someone with every dollar in one S&P 500 fund is taking more stock risk than most people his age.
Add up your real top-10 exposure. Download the fact sheet for every fund you own in the plan. Multiply each fund's top-10 weight by the dollars you have in that fund, then add the results across all your funds. That number is your concentration in practice.
Look for overlap. Compare the top holdings of your S&P 500 fund, target-date fund, and any growth fund. If the same names lead all three, look elsewhere. The bond fund, stable value option, or small-cap or international fund on your plan's menu may be worth researching. Each of these is driven by different factors.
Rebalance within the account. Trades inside a 401(k) create no capital gains tax. If withdrawals start within five years, review how much of your planned spending sits in stocks.
Use the 25% scenario as a stress test, then compare it against your own balance and fund weights, and look up your actual numbers before responding to the next AI trade.
(sponsor) 401(k)s are powerful retirement tools. But even savvy savers can make mistakes that quietly cost you money for decades. Choosing the wrong fund, ignoring small fees nobody adds up, rollover steps done in the wrong order, the list goes on.
These sort of mistakes is exactly what 401k & IRA Tips and Answers was created to help prevent. It is a free guide from Fisher Investments on rollovers, contributions, required withdrawals and the mistakes that do the most damage to a retirement account. Learn More Here ›
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