The market's riskier than it used to be—and investors love it

Investors have a strange relationship with risk. On the one hand, they want it: Risk brings reward when it works out. On the other hand, unrewarded risk is the very last thing anyone wants.

- James Mackintosh

The result is the all-too-familiar swing between fear and greed, boom and bust, as investors switch from loving risk to fleeing it. This is relevant to today's stock market because the market is riskier than it used to be on three important metrics:

The concentration is well-known, but that doesn't stop it from being scary. Buy the S&P 500, and the top five stocks make up 27.7% of the portfolio, up from 11.7% a decade ago and the same as in 1964. Back in 1964 it wasn't a problem: The rest of the market soared as the economy boomed, and concentration dropped steadily.

But as in 1964, investors are taking on a lot more of the single-stock risk that diversification is meant to shield against. Management trouble, product problems or fraud can hit an individual company hard, but they rarely matter much to a widely spread portfolio. If Nvidia (7.8% of the S&P) or Microsoft (6.7%) has some internal difficulty, it matters to the whole market in a way that setbacks to the strategy of Kimberly-Clark (0.08%) don't.