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Americans are more invested in the stock market than ever before. Stocks accounted for a record 45% of assets held by U.S. households and nonprofits in the second quarter of this year, according to Federal Reserve data. To put that in perspective, it was about 10% 40 years ago and in the 30% range before the pandemic.

On one hand, this is a milestone worth celebrating: Investing is no longer an exclusive club for the wealthy. Greater access through workplace retirement plans and easy-to-use investing platforms have allowed more people to get in on it.

And stocks are having a great run, pushing benchmarks to new record highs over and over again.

But with this much riding on the market, what happens if it falls?

At the Mercy of the Markets

It’s a good question to ask ourselves, given not just the record investment levels, but how concentrated the market is now. In 2010, the 10 largest companies in the S&P 500 made up about 19% of the index, — the broadest to track the U.S. stock market.

Today Nvidia, Microsoft, Apple, and the other top 10 companies account for about 40% of the index, more than than the entire tech sector did just 15 years ago.

Much of the market’s growth has been driven by advances in technology — most recently, enthusiasm for artificial intelligence. Shares of both Microsoft and Google-parent Alphabet have hit record highs this year on the back of their AI activities. But if those companies stumble, the entire market can feel it.

Or there could be another broad sell-off. At the start of the COVID-19 pandemic, the stock market experienced some of the sharpest drops in history. And earlier this year, the S&P 500 briefly fell into bear market territory amid news of steep new tariffs on imports.

Although the stock market has generally moved higher over the long-term, these tougher times can make investing feel perilous.

Why Diversification Matters

One way to counter these risks is to avoid putting all of your eggs in one basket. Diversifying means you reduce concentration risk by spreading investments across different assets, industries, or regions, so that poor performance in one area may have less impact on your overall portfolio. Because not all investments move in the same direction at the same time, you may be able to offset losses in one area with gains in another. This balance can help protect against large losses tied to any single investment.

“If everything in your portfolio is crushing it, you likely are not diversified enough,” says Brian Walsh, SoFi’s Head of Advice & Planning.

There are many different ways to put your eggs into different baskets. You can diversify your portfolio by:

•   Region: Mix U.S. and international stocks to balance local and global growth.

•   Sector: Add exposure to industries with different strengths and weaknesses. Manufacturing might be more influenced by the economic cycle, for example, while retail might be more sensitive to inflation.

•   Basic asset type: Combine generally riskier stocks with more stable bonds.

•   Alternative asset types: Add assets like real estate, commodities, or private investments for even broader exposure.

And funds that track assets in different parts of the market, like mutual funds or exchange-traded funds, make it easy to provide diversification to your portfolio.

So what?

With so much of wealth wrapped up in stocks, major market moves have the potential for dramatic impact. And that may test the resolve of even the most committed investor. Concentration is a real risk, but a well-diversified portfolio can help you stay resilient and focused on your long-term goals, no matter what the headlines say.

Related Reading

Americans Have More Money in Stocks than Ever Before. Economists Say That’s a Bright Red Flag
(CNN Business)

The Investing Risk You Might Be Overlooking When Buying Popular Stocks (Morningstar)

U.S. Stock Market Concentration Risks Come to Fore as Megacaps Report Earnings (Reuters)

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Diversification can help reduce some investment risk. However, it cannot guarantee profit nor fully protect in a down market.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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This article appeared in SoFi's On the Money newsletter. Not getting it? Sign up here.

If life throws you a layoff, a big medical bill, or a major house repair, you want to know you can handle it. But what does financial resilience actually entail?

It’s not about being rich. It’s about being ready.

While a recent survey by NerdWallet found Americans are more likely to feel financially resilient when they earn over $100,000 and own a home, it also showed that there’s more to it than financial resources. Just as important is how well you manage your money and can adapt to setbacks, surprises, or even opportunities.

Here are some telltale signs your finances would pass a stress test:

1. You’ve got a cushion to fall back on

An emergency savings stash is the backbone of financial resilience — a safety net to help you get back on your feet when times are tough.

Financial advisors often recommend having enough saved to cover three to six months’ worth of living expenses. But it’s better to start small than not start at all. For example, you could set up automatic transfers to a high-yield savings account, even if it’s just $20 a week. Thanks to the power of compound interest, that could make a big difference over time. And even a smaller buffer can reduce stress and prevent small problems, like an unexpected vet bill, from snowballing into bigger ones.

2. You keep debt under control

Debt isn’t necessarily a bad thing, but the type and size of it matters. Financially resilient households tend to have low or manageable debt, especially when it comes to high-interest debt from credit card spending. Credit card debt can get out of hand when you make only the minimum required payment, and ideally you’re able to pay your bill in full each month.

One rule of thumb is to keep your total monthly debt payments under 36% of your pre-tax income. If you’re over that threshold, focus on paying down the highest-interest balances. Momentum matters. Each bill you eliminate frees up cash flow and delivers more peace of mind.

3. You have a strong credit score

A good credit score doesn’t just signal responsibility, it provides options. If an unexpected bill pops up, access to affordable credit can be a lifeline. A strong credit score could also save you thousands in interest per year on loans like mortgages and car loans. Even insurance premiums may be lower.

Paying bills on time and keeping your credit utilization under 30% can help you maintain a strong credit score.

4. You have stable income sources

You don’t have to have a six-figure salary, but predictability helps you plan, save, and avoid expensive debt. People with either steady or multiple income streams tend to weather shocks better than those with unsteady pay, but that doesn’t mean that freelancers, gig workers, or business owners can’t feel financially resilient.

If you don’t have steady income, building resilience might mean creating your own version of stability, like budgeting around your lowest-earning month and saving the difference when times are good.

Whatever your income is, the important thing is that you live within your means.

5. You know where your money is going

Budgeting doesn’t have to mean spreadsheets and stress, but you want to be aware.

It’s important to have a handle on what’s coming in, what’s going out, and where you can pivot if something changes. Nerdwallet’s survey showed people who track spending on a regular basis are more likely to feel financially resilient. And studies suggest that people who track spending report higher financial confidence and less anxiety.

6. You can afford your housing, whether you own or rent

Homeownership usually correlates with stability, but it’s not the only path. What matters more is having housing costs that fit your budget. Whether it’s a mortgage or rent, experts recommend keeping total housing costs below 30% of gross income.

7. You understand how money works

Financial literacy might be the ultimate resilience tool. People who understand how risk, inflation, and compound returns work tend to make better decisions, recover faster from setbacks, and enjoy better financial health.

And you don’t need a finance degree, just curiosity. Read credible personal finance resources, listen to a podcast, or follow a budgeting community online. A little knowledge goes a long way.

8. You’re thinking about tomorrow

Retirement may feel far off, but saving for it is part of future resilience.

The ability to handle future financial needs without panic starts with habits you build earlier in life. Contributing even a small percentage of your paycheck to a 401(k) or IRA helps create a financial buffer that future-you will thank you for.

If your employer offers a match, grab it. It’s free money for your future, and something you can bank on in hard times.

9. You’re not going it alone

Don’t overlook one of the most underrated resilience factors: Connection.

Research has shown that people with strong social support from friends, family, and their community bounce back faster from financial stress. The more you reach out, the more support you can get.

Asking for help isn’t weakness. It’s resourcefulness.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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