For more than a decade, the “VOO and chill” mindset has been a staple of portfolio construction — buy an S&P 500 ETF, stay the course, and let compounding do its work.
That simple, low-cost formula may be losing some of its luster among wealth managers and clients who have grown wary of the concentration risks embedded in today’s index-heavy portfolios.
“Investors are looking beyond the ‘VOO and chill’ approach,” says Gavin Filmore, chief revenue officer at Tidal Financial Group. “Buying the market through an ETF is a great starting point, but clients want diversification. They’re not finding it within the product or the index anymore — they have to look beyond that.”
Filmore is referring to the Vanguard S&P 500 ETF (VOO), one of the most widely held funds in the world. The ETF tracks the S&P 500 and, along with the index itself, is up roughly 16% year to date. Those returns look strong on paper, but the composition of the index tells a different story — one of heavy concentration and narrowing breadth.
Todd Sohn, senior ETF and technical strategist at Strategas Securities, describes it bluntly: “Imbalance is the perfect word.” Technology now represents more than 35% of the S&P 500, its highest level ever, while defensive sectors such as consumer staples, healthcare, energy, and utilities have shrunk to a combined 19% of the index — an all-time low, according to FactSet data.
That imbalance raises familiar but increasingly urgent questions for wealth advisors: How diversified is a portfolio that’s meant to mirror the “broad” U.S. market when a handful of tech names dominate the index? How much exposure to genuine cyclical and defensive sectors do clients actually have?
For advisors who built their allocation models on the premise that the S&P 500 provided natural diversification, these questions are not theoretical. They cut to the heart of client portfolio construction and risk management.
Concentration risk at record highs
The “Magnificent Seven” — Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia — now drive the lion’s share of index performance. In 2023, these mega-cap tech names accounted for more than 70% of the S&P 500’s total return. That dynamic hasn’t changed much in 2025. As Sohn notes, the index’s leadership remains narrowly concentrated in technology and AI-driven sectors.
This narrowness creates challenges for advisors seeking balanced growth. While the S&P 500 has posted double-digit gains, it has done so with very little sector participation. “Clients may see the headline number and assume broad market strength,” Filmore says, “but beneath the surface, the story is about a handful of stocks doing all the heavy lifting.”
That imbalance matters, particularly for RIAs whose fiduciary responsibility extends to managing long-term risk. If tech valuations correct — or if earnings disappoint — a portfolio overly tied to a market-cap-weighted index could see steep drawdowns, even if other sectors remain stable.
Searching for diversification
With valuations in large-cap growth at stretched levels, many advisors are exploring alternatives. Sohn sees increasing interest in small-cap equities, as investors look to capture potential upside from parts of the market that have lagged.
The Russell 2000, which tracks small-cap stocks, recently hit an all-time high and is up more than 28% over the past six months — outperforming the S&P 500. Earlier this month, it crossed 2,500 for the first time in its history. “There’s a sense that the market is starting to broaden out,” Sohn says. “Investors are comfortable with their tech and AI exposure, but they’re seeking other routes — areas that have been overlooked for a while.”
That broadening is significant. For years, small-caps have traded at steep discounts to large-caps, both on absolute valuation and relative earnings multiples. If inflation remains moderate and rate cuts materialize in 2026, smaller domestic companies could see a tailwind.
For advisors, the appeal isn’t just performance potential — it’s diversification. Small-caps tend to have different sector exposures, more cyclical sensitivity, and less dependence on global technology giants. Adding exposure can help balance portfolios that have become unintentionally concentrated through passive index investing.
Beyond market-cap weighting
The passive investing model that fueled two decades of ETF growth is evolving. Advisors are increasingly turning to strategies that modify or move beyond traditional market-cap weighting. Equal-weight ETFs, sector-tilt strategies, and factor-based approaches (such as quality, value, or momentum) are drawing renewed attention.
“These aren’t new ideas, but they’re getting a fresh look because the market has changed,” Filmore says. “For advisors, it’s not about rejecting passive investing altogether — it’s about refining it. Index exposure remains a valuable building block, but it shouldn’t be the only one.”
Equal-weight strategies, for example, redistribute exposure more evenly across all holdings, reducing the influence of mega-cap names. Over longer periods, that structure has often resulted in higher volatility but also higher diversification benefits. Factor-based ETFs, meanwhile, allow advisors to target specific risk premiums that have historically driven returns independent of market-cap trends.
The behavioral component
Another underappreciated factor in the “VOO and chill” conversation is behavioral. Simplicity and automation have made passive investing appealing to clients who prefer a hands-off approach. But that same simplicity can mask concentration risk until volatility exposes it.
“When everything’s going up, it’s easy to be passive,” Filmore says. “But when clients see one sector driving performance — and then see it correct sharply — that’s when they start asking tougher questions about what diversification really means.”
Advisors have an opportunity to reframe that discussion. Rather than pitching diversification as a defensive move, they can present it as a way to unlock new sources of return and smooth out performance cycles. Building client understanding around diversification as proactive, not reactive, can help maintain trust when market leadership shifts.
Macro uncertainty adds urgency
Even with markets near all-time highs, the macro backdrop remains complex. Inflation, while easing, has not fully subsided. The Federal Reserve’s next policy moves are uncertain. Global growth is uneven, and geopolitical risks remain elevated.
Against that backdrop, portfolios overly reliant on a single sector or factor may face amplified volatility. Advisors are increasingly emphasizing balance — across size, geography, and style. Some are layering in active management for areas like fixed income or alternatives, where opportunities for alpha may be greater than in large-cap equities.
For RIAs managing client expectations in this environment, the challenge is twofold: preserving participation in growth while mitigating concentration-driven drawdowns. The goal isn’t to abandon core index exposure but to augment it thoughtfully.
What’s next for ETFs and portfolio design
ETF innovation is responding to this shift in investor sentiment. Asset managers are launching new products that combine passive efficiency with active insight — hybrid structures, thematic strategies, and rules-based approaches that allow advisors to express views without taking on idiosyncratic stock risk.
Filmore notes that Tidal Financial Group, which helps design and launch custom ETFs, is seeing increased demand from RIAs looking to create proprietary funds. “Advisors want more control over their exposures,” he says. “They’re using ETFs as a flexible vehicle to express a specific philosophy, whether that’s risk-managed, tax-efficient, or factor-driven.”
As the product landscape expands, so does the potential for advisors to differentiate. Firms that can articulate why their version of diversification is intentional — not just “different from the index” — are well-positioned to stand out in a crowded market.
The bottom line for advisors
The “VOO and chill” era isn’t over, but it’s evolving. The simplicity of market-cap-weighted indexing remains powerful, especially for clients focused on cost efficiency and long-term compounding. Yet advisors who rely solely on that approach risk missing the growing structural imbalances shaping modern markets.
For RIAs and wealth managers, the takeaway is clear: diversification is no longer just about adding more tickers — it’s about understanding what those tickers actually represent. As technology’s dominance pushes traditional benchmarks further from balance, advisors have both the challenge and the opportunity to rethink what “core” exposure really means.
“Diversification isn’t dead,” Sohn says. “It just looks different than it did five or ten years ago.”
For clients accustomed to “VOO and chill,” that evolution may take some explanation. But for advisors ready to adapt, it offers a way to reaffirm their value — not just as portfolio builders, but as risk managers guiding clients through a market that’s anything but passive.
