A couple of weeks ago, I talked about the recent stock splits from Apple and Tesla, and since then, a number of you have asked why there’s no Apple stock in our Envestnet accounts. We all use Apple products on a daily basis, right? Whether an iPhone, iPad, MacBook or even an old iPod, it’s hard to escape Apple. So, why don’t we own a company we all use on a daily basis?
Here’s the answer. Apple is currently the largest stock on the US stock market, and that means that, if you’re investing in your work-sponsored 401(k), pension plan, or if you own the S&P 500 or any New York Stock Exchange-traded funds, you probably already have some exposure to Apple within those accounts and investments.
We aren’t saying there’s anything wrong with Apple. But I do believe that the other companies we own for you in your portfolio can have better results over the next 10 years, as they carry smaller capital than Apple. There is the potential that Apple may double over the next 10 years, but that doesn’t mean that other companies can’t outperform them. Again, I have nothing against Apple, or Johnson & Johnson, or Visa, or Berkshire Hathaway. What I know is that, if you have accounts outside of us, you probably have some exposure already, and we don’t need to duplicate that. This is referred to as stock overlap.
One mistake I see investors make is assuming that diversification means holding some stocks, some bonds and some cash. Others think diversification means having more than one investment advisor. I don’t think that’s necessary based on our team and resources, but that’s just me.
Diversification is about more than asset classes. Once you know your risk tolerance and how much you’ll likely need over the next 18 months, then you can ask, “What are my goals with this money?” The majority of you want to make money with the least risk possible. Often, in discussions about risk, many people have failed to consider the idea of rampant inflation, which hasn’t occurred in the US for a while. However, I believe inflation could rear its head in the coming years. Inflation poses a big threat to cash and bonds, as they can’t keep up with inflation and can lose value daily.
Now, this is my opinion and I’ve only been doing this for two decades, but I believe it’s important for investors, once they’ve defined their risk tolerance, to look at what’s going in the world, rather than focusing on perfectly balancing and diversifying their portfolio. Balance may mean owning a little of everything, but some companies can’t raise the prices of the services fast enough to keep up. When we invest our client families’ hard-earned assets, we like to look at whether or not those companies can effectively raise prices to account for any inflation going on in the world.
But back to Apple. You might be wondering whether you should buy more. If you have any equity in your work-sponsored retirement plan, you may be buying Apple every time your company withholds money to put into your portfolio. However, if you want to have a discussion based on your situation give us a call.
I want to wrap by saying, if you have any children or grandchildren who are out of college and working that first job and looking for some help building out their investment portfolio, I would love to set up a quick phone call. Our team can help them start down that road and identify the brands and opportunities they follow – and I might just gain some new ideas too.
The views and opinions expressed are that of the author and do not necessarily represent the opinion of any broker dealer. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal.
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