The S&P 500 Is Up 10% in 2026 -- What Long-Term Investors Should Do Next

The S&P 500 (SNPINDEX: ^GSPC) is up 10% year to date (as of June 29, 2025). The Nasdaq-100 is up around 17.5%. Both indexes have generated double-digit returns in 2023, 2024, and 2025. Life has been unquestionably good for stock market investors lately. But that doesn't mean they should take their eyes off the ball.

You've probably heard it a thousand times before, but it bears repeating: Past performance isn't indicative of future returns.

In other words, just because the Vanguard Information Technology ETF (NYSEMKT: VGT) has a 10-year average annual return of 25% doesn't mean you should expect that over the next decade.

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Why rotating away from tech and growth stocks might be a good idea

There are macroeconomic risks today that could impact the future returns of certain investments. The inflation rate is above 4%. The war in Iran continues on despite multiple ceasefire agreements. GDP growth is slowing from its pace of the past couple of years. Consumer sentiment is near an all-time low.

But the bigger issue right now might be valuations. The Shiller cyclically adjusted price-to-earnings (CAPE) ratio, which measures current stock prices against 10-year inflation-adjusted earnings, is just above 41. The only other time in history it was at this level was just before the tech bubble burst in 2000.

That's not to suggest that another market crash is imminent. But history suggests that forward-looking returns tend to be lower when valuations are higher. Plus, given how far tech stock prices have risen over the past few years, other areas of the market, including small-caps and international stocks, might be due for an extended run of leadership of their own.

What to do with your portfolio today

The one good thing about the current bull market rally is that it's had strong fundamental support. It's not being driven by pure speculation. Earnings growth rates have been strong and are forecast to remain so over the next few quarters. If earnings keep growing, it might help limit some downside risk for investors.

But if diversification is on your mind, I suggest considering a solid dividend ETF like the Schwab U.S. Dividend ETF (NYSEMKT: SCHD). It considers dividend payment history, dividend growth, yield, and multiple fundamental metrics, such as return on equity (ROE).

Funds like these tend to be filled with more defensive, durable cash-flow generators that can withstand a range of economic environments. If conditions begin to really turn south, these stocks could provide portfolio protection as they did in 2022. The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is another solid fund that focuses on dividend growers and could be worth adding to your portfolio.

The key theme to evaluate right now is diversification. Most portfolios are overweight in tech and growth stocks. Rotating away from those and into other areas of the equity market is worth looking into.

David Dierking has positions in Schwab U.S. Dividend Equity ETF and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.