S&P 500 Sell-Off: 1 Investing Step to Take Right Now, and 1 Risky Move to Avoid
Key Points
With major indexes and popular ETFs becoming tech-heavy, investors need to be mindful of overlapping stocks.
Investing in sector-specific ETFs is a good way to balance your portfolio and build up areas where you're lacking.
Panic selling could cause investors to miss out on valuable gains whenever the market rebounds.
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The past month has been rough for the S&P 500 (SNPINDEX: ^GSPC), with the index down around 4%. The index fell over 3% just in the last week, including a 4.4% decline on Nov. 5 -- its largest since April 2025.
The sell-off stems from a combination of fears of an artificial intelligence bubble, interest-rate and inflation concerns, and geopolitical events and uncertainty. Only time will tell whether this sell-off marks the start of a correction or is just another routine dip. However, if we assume it's the former, here are two steps investors should take right now and one they should avoid.
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Check in on your portfolio allocation
A good first step is checking your portfolio allocation to see how balanced your investments are. Major indexes like the S&P 500 and many popular ETFs are weighted by market cap, so they've become heavily concentrated in mega-cap tech stocks.
The Vanguard S&P 500 ETF (NYSEMKT: VOO), for example, holds 505 companies, but nearly 40% of them are in the tech sector. And that's with companies like Amazon, Alphabet, and Meta Platforms technically being in non-tech sectors. Now is a good time to take a closer look and make sure you're not overly concentrated in tech stocks. This is especially true if you're investing in ETFs that overlap a lot at the top.
For example, many investors hold both the S&P 500 and a Nasdaq-100 ETF, such as the Invesco Nasdaq-100 ETF (NASDAQ: QQQM) or the Invesco QQQ Trust ETF. They have different underlying goals, so there's nothing wrong with that, but they also share eight of their top 10 holdings:
| Company | Weighting in VOO | Weighting in QQQM |
|---|---|---|
| Nvidia | 8.39% | 7.58% |
| Apple | 7.38% | 8.70% |
| Microsoft | 5.78% | 6.89% |
| Amazon | 3.71% | 4.86% |
| Alphabet (Class A) | 3.07% | 2.87% |
| Meta Platforms | 2.43% | 3.11% |
| Micron | 1.83% | 3.54% |
| Tesla | 1.52% | 3.13% |
Data source: Vanguard and Invesco. VOO percentages as of Sept. 30; QQQM percentages as of Nov. 5.
There's nothing wrong with being concentrated in tech, but you don't want your portfolio's entire fate resting on one sector. If you find that you're overconcentrated in tech (or any sector), consider using sector-specific ETFs to help make up ground in other sectors. For instance, if you're lacking energy and financial stocks, the Vanguard Energy ETF and Vanguard Financials ETF could help fill the gaps.
There's no set percentage of your portfolio that should or shouldn't be in tech; that's on you to decide. However, once you set your target allocation, sector-specific ETFs can help you stay on track. Diversification is a pillar of investing for a reason.
Don't sell in a panic
Admittedly, it's easy to tell someone they should stay the course when they're seemingly losing money by the hour or day. In practice, it can be hard to sit on your hands when you see your investments drop. After all, why not sell today and buy back shares once they've finished falling? In theory, that sounds good, but it presents two problems.
The first problem is that we can't predict how the stock market will move in the short term, and investors are historically bad at timing the market (like, really bad). If you sell shares expecting further drops and prices then rebound, you could miss out on valuable gains.
For perspective, simply missing the S&P 500's 10 best days in the 30 years between 1995 and 2025 would've cut your gains in half during that time.
The second problem is that you could incur an unexpected tax bill if you sell your shares at a profit. If you've held the shares for less than a year, your capital gains will be taxed at your regular income tax rate. If you've held them for at least a year, you'll get the more preferential capital gains tax rate.
Any profit is good profit, but don't forget Uncle Sam will always want his cut. Unless you absolutely need the cash, those shares are likely better off held for the long haul. The S&P 500 has bounced back from every sell-off, correction, crash, and bear market it has experienced. I don't see that changing anytime in the near future.
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Stefon Walters has positions in Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Micron Technology, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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