AI is the pivotal theme that’s accelerating innovation across sectors such as industrials, healthcare, finance, and technology itself. But today’s investment landscape feels a lot like the early 2000s.
After the dot-com bubble burst, uncertainty was high, but the foundational technologies of the internet and Web 2.0 were just beginning. For investors who looked past the wreckage and focused on the emerging winners—companies like Amazon, Google, and Apple—you’d be able to achieve returns that the broader market couldn’t even dream of.
Today, we’re at a similar crossroads. A new wave of foundational innovation, led by AI and supported by cloud computing, advanced semiconductors, decentralized finance and crypto, is not just creating a new “tech sector”—it’s rewiring the entire global economy.
For investors working with a certified financial planner (CFP) or a fiduciary financial advisor, this isn’t a time for passive, “average” index strategies. It’s a time for active risk management and focused conviction. Buying a broad index fund like the S&P 500 today is no longer a diversified, safe bet on the future; it’s mostly a bet on the past with hidden risks.
Real World Example
The recent performance of the market makes the case clear. In 2023, the S&P 500’s returns were almost entirely driven by a handful of mega-cap stocks known as the “Magnificent 7.”
- The S&P 500 Index (SPY): Returned approximately +24% in 2023
- The Magnificent 7 (Equal-Weighted Basket): Returned an +111% in 2023
From 2015 to 2024, a $10,000 investment in:
- Equal-Weighted Magnificent 7 portfolio: $324,877 (3,148% return)
- S&P 500 Index fund: $34,081 (241% return)
The difference: $290,796 in additional wealth.
Your Index Funds Are About to Be Disrupted
Major market-cap weighted indexes like the S&P 500 are heavily concentrated in a handful of mega-cap tech stocks (the “Magnificent 7”), which have driven much of the market gains over the years.
Your “safe” index fund may be heavily invested in the very companies about to be overtaken. When Goldman Sachs looked at this, they found that 31% of the portfolio is at risk of being disrupted or displaced by innovation. Passive index funds inherently carry this risk because they allocate capital based on market capitalization, often resulting in “bags” of companies that may be declining or obsolete (think AT&T, Boeing, Intel, Walgreens).
Innovative companies are actively trying to be “disruptive.” They use technology to find better, smarter ways to operate in existing markets or to create new markets from scratch. In short, they’re shaking things up on purpose. This is more than a trend—it’s reshaping how investment advisors and registered investment advisors approach portfolio construction.
Disruptive innovation requires skillful stock selection, which is why many investors turn to fee-only financial advisors who specialize in custom portfolio management and active risk management strategies. These advisors help build growth portfolios that focus on companies creating new markets or fundamentally transforming existing ones, rather than those being disrupted.
Choose Your Strategy
How can investors take advantage of this transformative period?
You have a choice. You can invest in an index fund and accept market-average returns, knowing you are simultaneously holding future winners and legacy losers.
Or, you can adopt the approach used by the world’s most successful investors: identify profound technological shifts, do thorough research to find the leaders, and build a concentrated, high-conviction portfolio designed to capture outsized returns in this new economic era.
When it comes to planning for your retirement and managing your money, having a fiduciary financial advisor by your side who understands how to actively invest in this ever-evolving landscape can make all the difference.
Investing in innovation today is not just a high-growth strategy—it’s the logical strategy for a world in transformation.
Ready to move beyond the standard advisor playbook?
At Paraiba Wealth, our focus is on building actively managed portfolios—a strategy designed for greater control, tax efficiency, and tailored to you. If you’re ready to see what this looks like, book a no-obligation initial call today.