The domestic stock market is on track for double-digit returns, with the S&P 500 Index up over 25% for the year.
Its return is driven largely by Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, and Meta Platforms. Collectively, known as the Magnificent 7, these stocks are up over 75%, while the remaining 493 stocks have returned less than 15%.
Should you own these stocks in your portfolio, and if so, how much of each stock should you own?
Before answering those two questions, let’s take a moment and review research by Dimensional Fund Advisors showing that once a company achieves the lofty “Top Ten” status of market capitalization within publicly traded companies, it is time to sell them, per data below.
Coffeehouse Investors take a common-sense approach to owning the current batch of Magnificent 7, and a strategy to also own the next decade’s Magnificent 7.
We own them all.
That’s right – we own the Magnificent 7 in proportion to the weighting of these companies in our index and passively managed funds.
Owning the Magnificent 7 over the past ten years has been essential to maximizing returns in common stocks.
More importantly, it is essential to own the next decade’s Magnificent 7. Although DFA’s research suggests the next decade’s leaders will not be the current 7, these are the companies, yet to be identified, that will have the greatest impact on the market’s returns in the coming years.
Maybe it is time to diversify beyond the Magnificent 7.
A Portfolio for the New Year
It's a good time to review your portfolio and ensure you have diversified enough to capture all the returns of whatever comes next. If you'd like a second opinion on your investment or financial plan, have $1 million or more in investible assets, and are in or close to retirement, let's connect in a complimentary strategy call. We can discuss your investment and financial plan for the year ahead.