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The last couple of years will come to be known as the artificial intelligence (AI) boom period. We've seen it in technological development. We've seen it in tech stock share prices. And most recently, we've seen it in Space Exploration Technology Corp., or SpaceX, the largest initial public offering (IPO) in history.

SpaceX isn't the only mega-IPO we'll see. Anthropic and OpenAI are likely to go public later this year and become trillion-dollar companies themselves.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

While this creates significant investor enthusiasm, it also poses risks to portfolios.

The major indexes, such as the S&P 500 (SNPINDEX: ^GSPC), are already heavily tilted toward tech. The Vanguard S&P 500 ETF (NYSEMKT: VOO) currently has 39% of its assets dedicated to the sector. The Vanguard Total Stock Market ETF (NYSEMKT: VTI) has even more tech exposure, at 42% of assets.

Even if you're just investing in broad stock market ETFs, you're heavily exposed to any changes happening in the tech space, good and bad.

The S&P 500 committee decided to keep the 12-month waiting period for index inclusion in place. But that also means that SpaceX, Anthropic, and OpenAI are likely to join the index in 2027. SpaceX could account for 3%-4% of the index based on current market capitalization. The others may eventually have similar weightings.

In other words, don't be surprised if tech accounts for half of the S&P 500 by the end of 2027.

It's time to consider diversifying away from some of that exposure.

The Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) uses the same universe of stocks but weights them evenly rather than by market cap. It's a minor modification that results in major changes to the index's composition.

Sector

RSP

VOO

Difference

Tech

19%

38.6%

-19.6 pp

Financials

15.1%

11.3%

+3.8 pp

Industrials

15%

8.3%

+6.7 pp

Healthcare

11.1%

8.3%

+2.8 pp

Consumer Discretionary

9%

9.7%

-0.7 pp

Consumer Staples

6.5%

4.6%

+1.9 pp

Real Estate

6.1%

1.8%

+4.3 pp

Utilities

5.7%

2.1%

+3.6 pp

Materials

5%

1.8%

+3.2 pp

Energy

4%

3.1%

+0.9 pp

Communication Services

3.7%

10.4%

-6.7 pp

Sources: Invesco, Vanguard. pp = Percentage points.

Using the equal-weight methodology, three sectors see their allocations reduced -- tech, communication services, and consumer discretionary. All three are predominantly growth sectors, and the Magnificent Seven stocks reside there.

The weighting reduced from those sectors is spread out pretty evenly across the remaining eight sectors. All but one see an increase of at least 1.9 percentage points. The overall result is a much more balanced portfolio whose performance can be driven by multiple economic factors instead of just the narrative around one.

As we saw during the first quarter of 2026, the composition of index returns can change dramatically when conditions change. As recently as late March, tech was the worst-performing S&P 500 sector. As optimism for Fed rate cuts was priced out, investors turned to value, defensive, dividend, and small-cap stocks. Those often get lost amid tech's recent rallies.

Investors should always be mindful of mitigating portfolio downside risk. With tech accounting for roughly 40% of broad market ETFs, there's plenty of idiosyncratic risk right now. Choosing an equal-weight version of the S&P 500 index helps spread out that risk, capture high return potential elsewhere, and cushion the impact of the next market correction.

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David Dierking has positions in Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Investing in an S&P 500 ETF? You May Want to Think Twice Starting in 2027 was originally published by The Motley Fool