The S&P 500 looks risky, but I’m still buying this stock
Billionaire Warren Buffettâs advice for most investors has been to buy a low-cost fund that tracks the S&P 500. But that looks like a risky proposition to me right now.
The index is heavily concentrated around a few very similar companies. And the rest of the US economy doesnât give me much encouragement either.
Concentration
Overall, the S&P 500’s done very well in recent years. But not every company’s done equally well — a handful of strong performers have offset much weaker results elsewhere.
For example, Microsoftâs revenues grew by around 15% in 2025, while Kraft Heinz saw a 2.5% decline in sales. For the index as a whole though, the net effect’s positive.
Microsoftâs sales increased by $36bn, while the drop at Kraft Heinz was less than $1bn. In other words, growth at bigger firms offsets a lot of smaller businesses going backwards.
The trouble is, it also creates risk. If at business like Microsoft falters for any reason, I donât think there are going to be enough Kraft Heinz-like firms to offset this.
The US economy
Something similar is true of the US economy. Consumer spending â which accounts for around 70% of US GDP â looks resilient, but thereâs more going on beneath the surface.
In reality, the overall resilience is being driven by strong contributions from the most well-off in society. And just like the index, this has the power to cover a lot of weakness elsewhere.
A a result, the same risk emerges. If anything causes the wealthiest households in the US to rethink their consumption levels, this is unlikely to be offset by increased spending elsewhere.
As a result, Iâm wary of the idea that investing in an S&P 500 fund is a good idea right now. But I do think there are potential opportunities within the index.
Insurance
One stock Iâve been buying recently is Brown & Brown (NYSE:BRO). The stock’s 37% off its 52-week highs, but I think there are some strong signs for the underlying business.
The insurance broker’s been dealing with two major issues recently: a weak market for insurers and integration costs after a large acquisition weighs on margins.
Both are genuine challenges, but I expect they will prove to be temporary. So I think the two of them combining to push the stock to unusually low levels could be a huge opportunity.
Brown & Brown aims to combine the advantages of local knowledge with the economic benefits of scale. In an industry I think will be durable, thatâs a powerful combination.
Investing strategy
One of the things I want from my Stocks and Shares ISA is diversification. And thatâs why Iâm unwilling to just ignore US stocks even when the S&P 500 as a whole looks risky.
I think Brown & Brown could be set to benefit from a double boost. A more helpful market for insurers could push sales higher while lower integration costs cause margins to expand.
The companyâs long-term competitive position also looks strong to me. Thatâs why itâs still on my ‘to-buy’ list as I look for stocks to scoop up during a tricky time for the S&P 500 and the US economy.
The post The S&P 500 looks risky, but Iâm still buying this stock appeared first on The Motley Fool UK.
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Stephen Wright has positions in Brown & Brown. The Motley Fool UK has recommended Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
