How much tech is too much? Managing sector concentration risk
If your portfolio is heavy in tech, you're not alone. Here's how to measure and manage that exposure.
Why tech concentration happens
Tech has been the dominant performing sector for over a decade. If you hold broad US index funds like VTI or QQQ, a significant portion of your portfolio is already in technology — even if you've never bought a single tech stock directly. QQQ alone is roughly 50% tech-adjacent by sector weight.
Add individual stocks like NVDA, AAPL, or MSFT, and your effective tech exposure can easily exceed 40–50% of your total portfolio without you realising it. This is sector concentration risk: a large drawdown in tech — like 2022's -33% — hits your entire portfolio hard.
How to measure your actual tech exposure
The first step is to look through your ETFs, not just at them. A fund like VTI is diversified across 3,500+ companies, but its top 10 holdings are almost entirely mega-cap tech. Check the fund's sector breakdown on the provider's website (Vanguard, iShares, BMO) and note the % in Information Technology and Communication Services — both are tech-heavy categories.
Add that weighted exposure to any direct tech holdings and you'll get your true sector concentration. Wealth Rebalancer's sector breakdown chart does this automatically if your CSV includes sector data.
What's a reasonable tech allocation?
Global market cap weight for tech sits around 22–25%. A broadly diversified portfolio should land somewhere in that range passively. If you're at 35–40% intentionally, that's an active bet on tech continuing to outperform — acceptable if you understand and accept that risk. If you're at 50%+ unintentionally, that's worth addressing.
How to reduce it without selling
The cleanest approach is to direct new contributions toward underweight sectors — international equity ETFs, financials, energy, or bond funds — rather than selling tech holdings and triggering capital gains. Over time, this naturally dilutes your tech concentration as other sectors grow as a share of your total portfolio.
If the concentration is severe and you're in a registered account (TFSA or RRSP) where there are no capital gains taxes, a partial trim and redeployment into a more diversified ETF like XEQT or VXUS is a clean solution.