FREE NEWSLETTER
THE DOUBLE-DIGIT recovery by the S&P 500-stock index this year has been driven almost entirely by seven mega-cap stocks: Apple, Google, Microsoft, Amazon, Meta, Tesla and Nvidia. In fact, these seven stocks now comprise more than 25% of the index.
Since our family is heavily invested in a mix of the S&P 500, U.S. technology and growth funds, plus some individual tech stocks, I began to worry about our portfolio’s investment concentration. I tallied our positions in these seven stocks across all our accounts.
For decades, our largest fund position has been various S&P 500 index funds (symbols: VOO, VFIAX and FXAIX). The index’s allocation is now 7% Apple, 7% Microsoft, 3% Google and 3% Amazon. We also have a large sum invested in two U.S. information-technology index funds (VGT and FTEC), which taken together give us highly concentrated holdings of 23.5% Apple, 19% Microsoft and 6% Nvidia. In addition, we have small stakes in two U.S. large-cap growth funds (VUG and FSPGX), which give us exposure of roughly 13% Apple, 12% Microsoft, 6% Google, 5% Amazon and 3.5% Nvidia. On top of that, we own some Apple and Google shares directly.
So, how concentrated had our portfolio become as a result of the market’s recent artificial-intelligence bubbling? My tally showed that our Apple holdings had crept up to nearly 7% of our total financial assets. Both Microsoft and Google holdings were just over 3% of financial assets. For perspective, one rule of thumb says you shouldn’t have more than 5% of your stock portfolio—as opposed to your total financial assets—in any one company.
We now owned too much Apple stock when all the bits and pieces were added together. Unlike Warren Buffett, whose Apple shares comprise nearly half of Berkshire’s stock portfolio, though a much smaller percentage of Berkshire’s total assets, we can’t afford the risk of being too concentrated in any one stock.
The upshot: We lightened up on Apple by selling all our directly owned shares held within tax-deferred accounts. This reduced our holdings to just under 6% of total assets. Our remaining Apple shares are owned within a taxable account, which we’re reluctant to sell because of the resulting capital-gains tax bill.
To further reduce our Apple exposure, we also rebalanced some fund holdings within our tax-deferred accounts. We sold a bit of our information-technology funds and moved this money to our growth-stock funds. This rebalancing almost hurts: The information-technology funds have been our best-performing funds since we retired in 2017.
Still, we felt it prudent to lower our Apple holdings by another 0.5% of assets, and we’re considering selling even more. Our other stock concentrations are at more comfortable levels, with Microsoft and Google at 3% of financial assets and all other companies at 1% or less.
Interesting article and interesting application of that 5% rule of thumb. I’ve only ever had it be a concern with employer stock, but also I’ve only considered underlying holdings of funds if they added to a stock I also owned separately. I don’t own any Apple directly so haven’t considered how much I hold in total. That said, I do own Berkshire Hathaway, so maybe I should.
I’m not doing the math, but will guess that even though I don’t hold it separately, the combo of funds and Berkshire might take me over 5% in AAPL, but not hugely over. As I have no intention of buying it directly, nor to hold any tech focused fund, I won’t sweat the rule bending itself due to underlying holdings, at least not for now.
Apple certainly cannot continue to grow at 24 percent, doubling in value in less than three years, the larger a company gets, the more difficult it is to grow quickly. BRK is a great example. Past performance is a very poor guide to future returns, perhaps?
And speaking of compounding, I do not feel that the Native Americans whom sold Manhattan for $ 24.00 worth of beads got such a bad deal, after all. 24 bucks compounded at 9 percent for 4 centuries turns into maybe $ 2, 000,000,000,000,000 or so. Which is two thousand trillion or so. Even indexed
for inflation , seems fair?
I was wondering how close you were, so I used an online calculator. $24 compounded at 9% annually for 400 years is $22,429,026,185,146,636. (Link to calculation.)
I think that might be enough to retire comfortably.