S&P 500 or Equal Weight Approach? Understanding Your Index Investment Options in 2026

The S&P 500’s Current Valuation Challenge

When looking at America’s flagship stock index, the numbers tell an interesting story. The S&P 500 currently trades at a Shiller P/E ratio of 40.6—a level only matched once before in market history, right before the dot-com crash. While historical patterns don’t dictate future outcomes, this valuation benchmark deserves investor attention.

What makes this particularly notable is that the index has climbed over 17% year-to-date through mid-December, recovered strongly from a brief correction earlier this year, and now stands at its most stretched valuation since the 2000s bubble. For someone considering exposure to U.S. equities, this context matters.

The Concentration Problem Within the Index

Here’s where things get more complex. The S&P 500, designed to represent the broader American economy across 500 companies, has become increasingly concentrated in mega-cap technology stocks. Looking at the top 10 holdings based on current index weightings:

The three largest positions—Nvidia, Apple, and Microsoft—collectively represent nearly 22% of the entire index. When you expand to the top 10 companies, they account for over 40% of the index’s total weight. This means that a significant portion of your returns is dependent on a handful of technology names.

For context, here’s how those heavyweights are distributed: Nvidia at 8.46%, Apple at 6.87%, and Microsoft at 6.59%, followed by Amazon (4.06%), Alphabet (5.05%), Broadcom (2.98%), Meta Platforms (2.41%), Tesla (2.19%), and Berkshire Hathaway (1.50%).

This concentration worked powerfully in investors’ favor over the past decade, with the S&P 500 outperforming alternative approaches by 242% versus 157%. Yet this creates a hidden risk: if these seven stocks stumble, the entire index stumbles with them.

An Alternative Approach: Equal Weight ETF Strategy

The Equal Weight ETF model—specifically options like the Invesco S&P 500 Equal Weight ETF (RSP)—offers a fundamentally different approach. Rather than giving larger companies more influence, every company in the index receives approximately equal representation.

The difference is dramatic. In an equal weight structure, Nvidia’s influence drops from 8.46% to just 0.20%. Apple goes from 6.87% to 0.24%. Microsoft shifts from 6.59% to 0.19%. Amazon, Broadcom, Alphabet, Meta, Tesla, and Berkshire Hathaway all see similarly reduced weights, typically landing around 0.17% to 0.25% each.

This equal weight etf approach keeps your exposure to the same 500-ish companies but removes the concentrated bet on mega-cap tech dominance.

The Long-Term Performance Picture

Interestingly, while the market-weighted S&P 500 has dominated over the last decade, the equal weight etf has historically delivered slightly better returns since its April 2003 inception when you extend your time horizon. This suggests that during different market cycles and valuations, a more balanced approach may have merit.

The choice essentially comes down to your risk tolerance and market outlook. Do you want to ride with the current tech momentum and live with concentration risk? Or would you prefer diversified exposure that hedges against the “Magnificent Seven” narrative carrying too much weight?

Positioning for Current Market Conditions

At current valuation levels—with the Shiller P/E at dot-com bubble territory and the index dominated by fewer names—the equal weight etf presents an interesting alternative for investors seeking exposure to large-cap American companies without the concentrated bets. You still access the world’s top companies, but through a more balanced lens.

The standard S&P 500 index remains a core holding for many investors, but an equal weight etf deserves consideration as a hedge against some of the specific risks the current market structure presents.