This group of companies has been dubbed the “Magnificent 7”. They dominate every aspect of your life. You’re on a Meta owned app right now, probably reading this on an Apple smartphone and about to search for something on Google, only to end up buying it on Amazon.
This graph might seem scary, but it’s really not. The weights of the top seven companies generally have ranged between 20-30% in recent times.
If you are a long term investor that has been buying index funds, keep doing exactly what you have been doing. Throughout your investing journey, there will be a whole host of different companies at the top of the index. It doesn’t matter to you.
WAIT, why not just invest in these 7 stocks?? Well, for starters, these seven stocks were down over 40% in 2022 (the S&P 500 was down 18%). And, who’s to say if these will be the handful of stocks that dominate the next few years? No one knows. The only way to guarantee that you own the next group of stocks with hot performance is to own index funds.
Also, this should serve as another reminder that picking the next winning stock is really hard. Even if you got lucky and picked some winners this year, if you left out just one of those big seven companies, you would likely underperform the S&P 500. The only way to guarantee that you keep up with index is by OWNING the entire market. Buy index funds.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Vivi & Shane
