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Experts warn the S&P 500 is broken. Has Warren Buffett’s golden ‘set it and forget it’ rule finally failed?

On October 8, 2025, the S&P 500 (^SPX) reached a record high of US$6,753.72 amid an ongoing government shutdown in the United States (1). For buy-and-hold investors this new high for the S&P 500 may leave them feeling pretty good. But a few market experts are warning that portfolio’s built on holding index funds, like the S&P 500 index fund (^SPX) or similar exchange-traded funds (ETFs) may want to rethink their strategy.

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Warren Buffett: Big fan of buy-and-hold portfolio

Warren Buffett has long been a fan of the buy-and-hold strategy. In 2008, the Oracle of Omaha was asked what strategy a typical amateur investor should employ and his response was clear: “I’d probably have it all in a very low-cost index fund … and then I’d forget it and go back to work." Speaking at the 2008 Berkshire Hathaway shareholders meeting, Buffett continued (2): “You’ve got a perfectly decent return over a 30- or 40-year period by doing what I suggest."

But while S&P 500 index funds and ETFs have long been regarded as the perfect “set it and forget it” type of investment, there are drawbacks to having all of your money in either option. And experts are beginning to sound the alarm. “The S&P 500 is broken,” explained Michael DeMassa, a certified financial planner and chartered financial analyst, during an interview with CNBC (3).

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The danger of putting all your money in the S&P 500

The S&P 500 is a stock market index that tracks the performance of roughly 500 of the largest publicly traded companies in the U.S. — weighted by their market capitalization. Market cap is calculated by multiplying a company’s current share price by its outstanding number of shares.

Generally speaking, companies with a larger market cap are considered more stable and less risky than companies with a smaller market cap. For this reason, the S&P 500 is generally considered a good option for everyday investors — it consists of established companies with large market caps, as well as a diverse range of other businesses.

The problem with the S&P 500 is that it’s less diverse than some people might think, and a big reason is that it’s a market cap-weighted index. This means that companies with the largest market value have the most influence on the index’s performance.

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Currently, the S&P 500 companies with the largest market cap including the parent company of Google, Alphabet (TSX:GOOG.TO), Apple (NASDAQ:APPL), Amazon (NASDAQ:AMZN), the parent company of Facebook, Meta (NASDAQ:META), Microsoft (NASDAQ:NMST), NVIDIA (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA). Notice anything about these names? They’re all tech companies.

What this means is that if there’s a broad downturn in the tech industry, that could easily take down the S&P 500 on a whole, leaving its investors with serious losses — at least in the short term. This doesn’t mean that it won’t eventually recover, but the S&P 500 has suffered through prolonged dips in the past.

For example, between 2000 and 2008, the S&P 500 was down by more than 30%. In March of 2009, it reached its lowest point of the Great Recession, closing at a price of US$676.53 (4).

The S&P 500 has proven it can recover from downturns — even significant ones. All you need for proof is to compare that 2009 price to where the stock market index is at today. But it still poses a risk to investors who may not have years to wait out a recovery, like those on the cusp of retirement.

While Wall Street forecasts predict the S&P 500 will continue to go up — at least for the foreseeable future — experts suggest investors adopt a broader mix of investments within their portfolio — in case there’s a downturn. With this in mind, if you’re heavily invested in the S&P 500 — or in any ETF of fund that is heavy in tech — you may want to look at other options, in order to protect your investments.

That means for Canadian investors with a large stake in the Canadian version of the S&P 500 (^SPX) — the S&P/TSX Composite Index (^GSPTSE) — start looking at what this fund is tracking. You’ll notice the S&P/TSX Composite tracks the largest publicly traded companies on the Toronto Stock Exchange (TSX). And, similar to the S&P 500, it’s weighted by market capitalization, meaning the index’s performance is most influenced by the largest companies.

The S&P/TSX (^GSPTSE) is heavily weighted toward financials, energy and materials rather than tech, so it differs from the U.S. market index fund, in terms of risks and sector exposure. As of January 2024, the S&P/TSX Composite Index represented approximately 80% of the total market capitalization of the TSX and included over 220 companies.

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How to diversify your portfolio

Many Canadian investors seek diversification through a mix of Canadian and U.S. index funds, as well as bonds or other assets, aiming for long-term growth while balancing risk.

There’s nothing wrong with putting some of your money into an S&P 500 index fund or ETF and calling it a day, but it’s a good idea to branch out beyond that single option.

One Canadian-friendly approach is to consider putting money into a total stock market fund — which invests in a wide range of American stocks: large-cap, mid-cap and small-cap companies. Total stock market funds include far more companies than the approximate 500 stocks found on the S&P 500.

A total stock market fund could lead to a more diversified portfolio and more protection during market downturns. At the same time, small-cap stocks tend to be riskier by nature, which is something you’ll need to consider against added diversification.

Other options to diversify your portfolio in Canada include:

You can also look to buy some individual dividend stocks to balance out an S&P 500 index fund or ETF. By nature, the S&P 500 tends to be influenced heavily by growth stocks, which can be more volatile.

Dividend stocks can help balance things out, and the income they provide in the form of dividend payments can help offset losses during periods of market decline.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Los Angeles Times (1); YAPSS — YouTube (2); CNBC (3); Benzinga (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.