03 Sep 2020 How Much Apple Do You Own?

There’s almost always something interesting going on with the stock market. Lately, it’s been hard to ignore the dominance of large U.S. technology stocks. The fact that the stock market, as measured by the S&P 500, is up 9.16% year-to-date as of September 1st is pretty amazing given the year we’ve had. But 9% seems small when compared to the returns of some of the big tech companies. Apple alone is up 90.93%.

I believe it’s possible for us as investors to look on as Apple, Microsoft, Amazon, Facebook and Google continue to dominate the stock market and feel two competing emotions at the same time.

First, FOMO.

The fear of missing out. This emotion is common when certain investments are either substantially outperforming the rest of the market or widely considered to be the next “big thing.” Investments like Bitcoin and Tesla, and now big tech companies, have been notorious in recent times for causing more than one of us to have that dreaded feeling that unless we own some or more of X we’re really going to miss out. It often feels as if everybody else is making big money while we’re sitting on the sidelines.

Second, concern.

It’s true that some of the things that have been most challenging for us as a people this year have driven much of the performance of technology stocks. The need to work from home, order groceries online and check Facebook on our couch instead of being out with friends has been a boon for certain parts of the economy but a real hardship for others. That, combined with the fact that Apple, Microsoft, Amazon, Facebook and Google now make up nearly 23% of the S&P 500 index, helps explain how the stock market can be doing so well during a time of crisis when small business owners are facing immense challenges and unemployment is so high.

With that said, it’s hard to know how much of big tech stocks recent outperformance is due to systemic changes in the economy and how much is due to investor overconfidence. I don’t know if big tech stocks are overvalued and no one knows how long the bull market in these stocks will continue. I’m not attempting to call the top, it’s just that their outperformance is hard to ignore and it wouldn’t be unusual if you were feeling a bit of concern as they continue to march higher.

Where are you with the emotions surrounding your investment portfolio? Are you currently feeling a mix of FOMO and concern or do you lean more towards one or the other? Either way, I though it might be a helpful exercise to learn how to calculate just how much of your portfolio is in these big stocks.

I’ll use the example of our Beacon 70 model portfolio which looks like this.

• 62% Vanguard Total Stock Market ETF (VTI)
• 8%   Vanguard Total International Stock Market ETF
• 27% iShares Barclays 7-10 Year Treasury Bond ETF
• 3%   SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF

Therefore, someone with a $700,000 portfolio invested in the Beacon 70 model portfolio would have around $434,000 invested in the Vanguard Total Stock Market Index ETF.   As of the end of July, the five stocks we’ve been talking about made up 19% of the Vanguard Total Stock Market ETF’s value.

So, we can calculate that this person would have exposure to Apple, Microsoft, Amazon, Facebook and Google totaling about $82,460. Or roughly 12% of their portfolio. Of course, if you own one of theses stocks outside of a mutual fund or ETF you’d want to add that into the calculation.

Whether you’re feeling more FOMO or concern, a good starting point for keeping your emotions in check, as always, is to figure out where you stand. You may find out that you own more Apple than you think. Perhaps knowing that you’re participating in the dominance of the big tech stocks will help check those FOMO feelings.

Or you may find that the percentage of your portfolio consisting of technology stocks isn’t a cause for concern. After all, 88% of the portfolio in our example above had exposure to something other than those 5 stocks.

Please let us know if you’d like some help calculating your own exposure to big tech stocks or if you’ve done your own calculation and you’d like to talk about it.

As always, this Brief is not intended to predict the future of the stock market or individual stocks. Also, if you calculate that you’ve got more exposure to a particular stock than you’d like, please consult with one of us at Beacon or your tax advisor before making any changes as there may be tax consequences.