I was listening to Jenny Johnson, CEO of Franklin Templeton, on The Compound and Friends when she said, “Sometimes you will underperform the benchmark because you have to consider concentration risk.”

That comment stuck with me because it highlights something we don’t talk about enough: portfolios aren’t built to beat an index, they’re built to help clients reach their goals. And while the S&P 500 has been an incredible driver of wealth creation over the last decade, relying on it alone can create risks that most investors don’t see until it’s too late.

1. Indices Weren’t Designed to Be Invested In

Over the past decade, the S&P 500 Index has delivered strong returns, outperforming many other asset classes1. But here’s the catch: the index wasn’t built as an investment product. It was designed as a measuring stick.

Today, just eight companies make up nearly 40% of its weight. That’s not diversification, that’s concentration. If this were a client portfolio, it would be difficult to argue it aligns with any risk tolerance or long-term plan. Yet because it’s packaged as an index, investors often overlook how much risk sits under the surface.

Our job isn’t to dismiss the S&P 500. We absolutely want exposure to innovative companies driving global growth. But it is to recognize that the index itself was never designed as a well-balanced portfolio.

2. The Importance of the Correct Benchmark

When evaluating portfolios, another overlooked issue is the benchmark itself.

A globally diversified, multi-asset portfolio, the type most investors need to meet their long-term goals, simply isn’t built to look like the S&P 500. Comparing the two directly is misleading. It can make prudent, risk-aware investing look like underperformance, when in fact the portfolio may be doing exactly what it’s supposed to: smoothing out the ride and helping protect the plan.

The benchmark conversation is really about expectations. When we compare against the right yardstick, one that matches the portfolio’s actual mix of stocks, bonds, and alternatives, we can better understand performance in context. That context is critical, because without it, “beating the market” becomes a distraction from what matters most.

3. Beyond Beating the Joneses

Even with the right benchmark, the obsession with beating it can be a trap. It’s human nature to compare, whether to neighbors, peers, or the headlines. But chasing short-term winners or “keeping up with the Joneses” is often what derails long-term success.

Diversification sometimes feels less exciting, especially when the S&P 500 is running hot. But diversification isn’t about playing scared or avoiding risk. It’s about spreading risk intelligently, taking advantage of global opportunities, and positioning for the future, not just chasing what worked yesterday.

At Arvada Wealth, we build portfolios that include U.S. growth stocks but also reach beyond them: international companies, high-quality bonds, real assets, and other strategies that add balance. These are not excuses for underperformance, they are intentional choices that we believe give clients the highest probability of long-term financial success.

Closing Thought

As an investment manager, I’m naturally competitive and want portfolios to perform well against benchmarks. But at the end of the day, that’s not what matters most. Our responsibility is to help clients stay on track, regardless of whether a single index is up or down.

Jenny Johnson’s reminder was simple but powerful: sometimes underperforming the benchmark is the responsible outcome. And that’s not settling. It’s doing what’s best for the people we serve.

Key Takeaways

• The S&P 500’s recent success has been extraordinary, but it is not a diversified portfolio.
• Benchmarks matter. Comparing a balanced portfolio to the S&P 500 alone is misleading.
• Diversification isn’t about avoiding risk, it’s about positioning for the future.
• Our focus is not on beating an index, but on building portfolios that we believe give clients the best chance of reaching their long-term goals.