We need to talk about the Hank Green AI Video…

Hank Green released a video titled “I’m Changing How I Manage My Money Because of AI.” It got about a million views in a week, and many of you have sent it to us asking for our thoughts. Well, we do have thoughts, and I am so excited to share them with you. Let’s dive right in.

He begins by saying:

“I’m not a financial adviser. I do not understand what financial advisers do or what is the best way to invest your money. I am simply a man who has money invested for retirement and has paid attention to how that has gone for people over the last 30 years or so. And one thing that has become obvious is that if you were disciplined over the last 30 years—and of course past performance is no guarantee of future returns—but if you just made sure that you were invested broadly in the stock market, things went well for you.”

I like a lot of what he said there. Past performance does not guarantee future returns. That said, as Hank pointed out, if you were broadly invested in the stock market, things went pretty well for you. We have the data to back this up: if you look at the rolling annualized returns of the S&P 500 from 1970 to now, the average 40-year annualized return sits at around 10.9% (or 7.5% if adjusted for inflation). That means if you invested in the S&P 500 for 40 years of your working career, you could expect around a 10% annualized rate of return on average.

Hank goes on to say that if you spent your time buying, selling, and day trading, you probably underperformed the market and wasted a lot of effort. If you paid someone else to do that for you, it probably didn’t help much either.

This is also true. Take 2024 as an example: it was a record-breaking stock market year with several all-time highs and a total annual return of over 25%. But the average private investor only earned about a 16.5% return, according to Dalbar’s annual report. A University of California study found that high portfolio turnover could reduce returns by as much as 6.5% annually due to trading costs and poor market timing. Actively managed funds don’t fare much better. According to SPIVA, nearly 90% of active large-cap funds underperformed the S&P 500 over a 15-year period.

Hank then explains what he means by investing in a low-cost U.S. equity index fund:

“Index fund means you’re not paying someone to guess which stocks will win. The fund simply follows a list of U.S. companies like the S&P 500 or the entire U.S. stock market. It’s a way to invest in the market itself rather than trying to outsmart it. Low cost means the fund takes very little off the top, often just a few dollars a year for $10,000 of investment. Over decades, even tiny percentage fees compound just like any percentage can compound, and they can quietly eat away thousands or tens of thousands of dollars from your future. And U.S. equity means the fund tracks American companies from tech giants to banks, manufacturers, and retailers, giving you a slice of the whole U.S. economy in one investment.”

This is all correct. The average expense ratio of a passively managed index fund is about 0.1%, according to Investopedia. Actively managed funds, on the other hand, typically have expense ratios between 0.5% and 0.75%. On a $100,000 investment, that’s $120 in annual fees for an index fund versus $580 for an actively managed fund—while 90% of them underperform. Over time, those fees compound and can eat away a significant portion of your wealth.

Hank also notes that index funds are market-cap weighted. That means the bigger a company is, the larger its slice of your investment. For example, if Apple represents 5% of the S&P 500, then 5% of your investment in an S&P 500 index fund goes into Apple.

This weighting leads to Hank’s concern: the top 10 companies in the S&P 500 now make up about 38% of the index, with Nvidia alone representing around 7–8%. Since many of these companies are heavily invested in AI, Hank worries that the S&P 500 is less diversified than it appears.

He’s not alone. We hear this concern from clients often. While it’s true that concentration in the S&P is high right now, this isn’t unusual historically. Different sectors have dominated in different eras—railroads, energy, telecommunications, and now technology. Market concentration tends to happen during periods of innovation as capital flows to growth opportunities. Still, concentration does increase risk, which is why true diversification means going beyond just the S&P 500. A well-built portfolio should include small caps, international stocks, and bonds that move differently than large U.S. tech companies. (Learn more about diversification here.)

Hank decided to address this by reallocating 25% of his S&P 500 investment into:

• An S&P 500 value index fund (excluding higher-priced growth stocks with high P/E ratios).

• Mid-cap stocks.

• An international index fund.

Essentially, he wants more diversification because the top companies in the S&P 500 take up too much of his portfolio and trade at very high valuations. High price-to-earnings ratios can be risky because they rely on companies delivering massive future growth. If AI companies don’t deliver the earnings investors expect, valuations could fall—much like what happened during the dot-com crash.

The rest of his diversification is more straightforward: small caps offer higher growth potential but higher risk, while international stocks broaden exposure beyond the U.S. economy.

We’re not weighing in on whether Hank’s decisions are right or wrong, but we do think it’s worth asking: why 25%? Was that number based on professional advice, or did he just pick it?

For many investors, there’s actually a simpler way to achieve everything Hank wants: index target retirement funds. These funds automatically include U.S. large cap, small cap, international, and bonds in a single low-cost investment. They also rebalance automatically and shift toward more conservative holdings as you approach retirement. Expense ratios are typically very low (around 0.08%–0.15%).

In other words, target date funds deliver the diversification Hank is creating manually, but in one simple investment that evolves appropriately over time.

Hank, it was a very interesting video and we loved a lot of what you said. And if you all liked our breakdown, make sure you like, subscribe, and keep building toward your great big beautiful tomorrow.