“They didn’t choose to buy these stocks, and they don’t really know what’s going on,” said Hera Hyeonseo Lee, a doctoral researcher at Binghamton University.
About 54% of U.S. households have a 401(k), according to the Federal Reserve, and the overwhelming majority of these retirement plans default into cap-weighted index funds that buy all the stocks in the market and buy more of the biggest companies. “So whenever a company like Nvidia grows and takes up more of the S&P 500, the fund automatically buys more of it,” Lee says. That happens no matter how expensive or big the company gets, and it has long made good sense.
