The S&P 500…
The Dow Jones Industrial Average…
The Nasdaq…
The Russell 1000 Value…
You’ve heard of them. You probably follow them.
You may even compare your portfolio to them from time to time.
But if we’re being honest, most people don’t really understand what these benchmarks are measuring.
Instead, many default to one simple idea: “I should always be outperforming.”
That sounds logical. It also happens to be a really dangerous assumption.
How Indices Are Built
Not all benchmarks are created the same, and that’s where the disconnect starts.
Indices are built in different ways: cap-weighted, equal-weighted, and price-weighted. Those aren’t just technical distinctions. They materially change what you’re measuring yourself against.
A market-cap weighted index like the S&P 500 gives more influence to larger companies. The bigger the company, the more it drives the return. That makes intuitive sense… until a handful of companies become so large that they start to dominate everything. Concentration risk quietly builds, but most people never notice it.
Equal-weighted indices flip that. Every company gets the same allocation, which reduces concentration but introduces a different kind of bias. You end up with more exposure to smaller companies and more turnover from rebalancing.
Then there’s price-weighted indices like the Dow. These are honestly a bit outdated.
A higher stock price gets more weight, regardless of how big the company actually is. It’s still widely quoted, but not many professionals view it as economically meaningful.
The Concentration Problem
Let’s focus on the S&P 500, because this is where the issue becomes most obvious.
The index is as concentrated today as it’s ever been. As of May 18, 2026, the top ten holdings make up roughly 38% of the entire index. Ten companies driving nearly forty percent of “the market.”
That’s not diversified. That’s concentrated.
NVDA alone is about 7.4%. GOOGL is around 6.7%. AAPL sits at roughly 6.1%. And when you zoom out further, technology now represents over 36% of the entire index. Semiconductors are right at the center of that.
So when someone says they’re diversified because they own the S&P 500… it’s worth taking a second look at what they actually own.
The Active Manager’s Dilemma
Now think about this from an active manager’s perspective.
Your job is to manage risk. You look at a sector like semiconductors and see high valuations, cyclicality, geopolitical supply chain exposure, and a significant amount of concentration tied to a single theme.
So, you underweight it.
That’s a rational decision. It’s defensible. It’s what you’re supposed to do.
And then the sector outperforms by 20%.
Just like that, you’re behind.
Even a modest 5% underweight in a sector that outperforms by 20% can cost roughly 1% of relative performance. That’s from one decision, before anything else is taken into consideration.
This is where things start to break down.
The prudent, risk-managed decision… ends up hurting relative performance.
That’s the paradox. The “right” decision and the “benchmark-safe” decision are no longer the same thing. And they’re diverging more than ever.
Sometimes a Benchmark Does Not Fit the Strategy
You can also see the same issue show up in value benchmarks like the Russell 1000 Value.
Micron and Intel are two of the larger holdings in that index right now, and both have had significant runs this year. Micron is up well over 100% year to date. Intel has also had a massive rebound.
If you’re running a value-oriented dividend growth strategy, you almost certainly don’t own either. And you shouldn’t.
Micron barely pays a dividend. Intel eliminated theirs during restructuring. They don’t fit the mandate.
But if they’re in your benchmark and performing well, you’re going to lag. Not because you made a bad decision… but because the benchmark doesn’t align with your strategy.
That’s not an execution issue. That’s structural.
The takeaway is simple: the benchmark itself has become a source of risk.
Which brings us to a bigger point. The only benchmark that actually matters is whether your portfolio is doing what it’s supposed to do.
We need to be asking ourselves: Can my portfolio achieve my long-term return target? Can it support my financial plan? Can it hold up through a full market cycle? That’s the real comparison. Not whether you beat an index in a given year or even multiple years.
At our firm, we anchor everything to a client’s required rate of return: the return their plan actually needs to work over time. That’s the benchmark that matters most.
Indices aren’t directly investable. They don’t account for fees. They don’t account for taxes. They don’t reflect how portfolios are actually managed in the real world. You don’t invest in an index. You invest in a portfolio. Those are not the same thing.
Performance Matters
Now, that doesn’t mean performance doesn’t matter. It absolutely does.
As asset managers, we analyze performance constantly. There are always reasons a portfolio outperforms or underperforms, and understanding those drivers is critical. That’s where attribution comes in. It explains what happened and, more importantly, why. It forces discipline and keeps us honest.
But for clients, if the entire conversation is just, “Did my portfolio beat the S&P 500?” They’re missing the point completely.
Because outperforming a benchmark doesn’t guarantee success. And underperforming doesn’t necessarily mean failure.
So, the next time you hear someone say, “I just want to beat the market,” it’s worth asking a simple question. Why?
Because if you don’t know what you’re actually trying to accomplish, you’ll never know if you got there.
What does success look like for your portfolio?
Disclaimer: The views expressed in this blog are solely those of Austin Wilson and do not necessarily reflect the views of Hixon Zuercher Capital Management. Hixon Zuercher Capital Management and its clients may hold positions in securities mentioned. Nothing in this blog constitutes investment advice or a recommendation to buy or sell any security. All investments involve risk, including possible loss of principal. Please consult your financial advisor to ensure any investment aligns with your objectives and risk tolerance. Indices are unmanaged and not directly investable. Any investment in securities, funds, or other financial instruments will involve costs and fees, including but not limited to fund expense ratios, management fees, and transaction costs. This content is provided for informational purposes only and is not intended to comply with the requirements of the Investment Advisers Act of 1940 or any other applicable securities laws. Past performance is not indicative of future results.
Published by Austin Wilson, Inspired Investing, on June 22, 2026
