The three most popular ETFs in America hold a combined $1.6 trillion in assets. Millions of investors own them. Financial influencers recommend them constantly. And for many people buying them today, that popularity might be exactly what hurts their returns over the next decade.
Crowd wisdom is real. But crowd behavior in investing has a nasty habit of working against you.
“Everyone Owns It” Is Not a Safety Signal
When something becomes wildly popular in finance, the temptation is to read that as validation. If this many smart people are buying it, it must be good, right?
Not exactly.
When SPY, VOO, or QQQ gather hundreds of billions in assets, something mechanical happens: every dollar that flows in has to buy the same stocks in the same proportions. The ETF doesn’t get to decide “these stocks look overvalued, let’s hold less.” It follows the index, full stop.
So what you end up with is a self-reinforcing cycle. Investors pour money into the S&P 500 ETF. That money gets distributed across 500 companies, but not equally. The top 10 holdings get the biggest slices. Those stocks go up. That performance attracts more investors. More money flows in. The cycle repeats.
The stocks at the top aren’t necessarily the best businesses at that moment. They’re just the ones that benefit most from the inflow.
The Hidden Concentration Problem Inside “Diversified” Funds
Here’s something most people buying an S&P 500 ETF don’t realize: you’re not getting equal exposure to 500 companies.
As of early 2025, the top 10 stocks in the S&P 500 made up roughly 36% of the entire index. That means when you buy a total market ETF, more than a third of your money is going into 10 companies. The other 490 companies split the remaining 64%.
That’s not diversification in any meaningful sense of the word. That’s concentration with extra steps.
Now layer on the fact that most people don’t own just one ETF. They own VOO and also QQQ and maybe a tech ETF their coworker mentioned. When you look at the actual holdings, those funds share massive overlap. You might feel like you’re spreading your risk. You’re often just buying Apple, Microsoft, Nvidia, and Amazon four different times.
Popularity Can Inflate Valuations Before You Even Get In
This is the part that rarely gets discussed on social media.
When billions of dollars flow into the same index funds, they create buying pressure on the underlying stocks. That pressure pushes prices up. Not because the companies suddenly got more profitable, but because more money is chasing the same shares.
Research from AQR Capital and others has suggested that the relentless growth of passive index investing may be inflating valuations for the largest index constituents. A stock’s weight in the S&P 500 is determined by its market cap, which is partly determined by its stock price, which is partly determined by how many index funds are forced to buy it.
It becomes a bit circular.
When you buy the most popular ETF at all-time-high inflows, you may be buying into stocks that are expensive partly because of their own popularity, not purely because of underlying business strength.
The Overlooked ETFs That Often Do Better
There are ETFs tracking equal-weight versions of the S&P 500. Instead of letting Apple eat 7% of your portfolio, every company gets roughly 0.2%. Historically, the equal-weight S&P 500 has outperformed the cap-weighted version over long stretches, largely because it naturally buys more of cheaper smaller companies and less of expensive mega-caps.
The Invesco S&P 500 Equal Weight ETF (RSP) is one example. It’s not obscure. But it has a fraction of the assets that VOO holds, gets mentioned a fraction as often, and yet has beaten the standard S&P 500 in multiple long-term periods.
There are also factor-based ETFs that screen for value, profitability, or dividend history. Many carry expense ratios below 0.15%. Many have far less overlap with each other than the popular index giants. And because they’re not attracting the same massive inflows, there’s less of that self-reinforcing valuation inflation problem.
None of this means you should avoid popular ETFs entirely. For someone just starting, a low-cost S&P 500 ETF is still a solid foundation. But if your entire portfolio is three popular ETFs that share 70% of the same holdings, you are not as diversified as you think.
What to Actually Do With This
Start by checking your overlap. Tools like ETF Research Center’s overlap tool or Morningstar’s portfolio analysis will show you what percentage of your holdings are duplicated across your funds.
If you’re heavily concentrated in the same 10 mega-cap tech stocks across multiple ETFs, consider adding exposure to genuinely different slices of the market: small-cap value, international developed markets, equal-weight domestic, or dividend-focused funds.
Look at expense ratios of your less-popular alternatives. You may find funds with similar or better historical performance charging 0.07% instead of 0.20%.
And when everyone you know is excited about one specific ETF? That excitement itself is worth pausing on.
The best investment decisions are rarely the ones that feel most obvious. The crowd is often chasing last decade’s winners right into the next decade’s underperformers.
Popular does not mean optimal. It means popular. Those are very different things.
