Heard of Apple? Of course you have.
Not only are its iconic products considered staples in many U.S. households, the company is currently the biggest player on U.S. stock exchanges, in terms of market capitalization (stock price times the number of shares outstanding). Its biggest showing to date came in early August, when Apple became the first U.S. firm to reach a market capitalization of $1 trillion.
Close on its heels was another tech superstar: e-commerce giant Amazon, which briefly hit a $1 trillion market cap in early September.
Sound like worthwhile investments, right?
Size does matter when it comes to investing. After all, the world’s biggest companies have gotten there for good reason. “Apple’s market cap says it’s doing well,” say Davon Barrett, financial analyst at Francis Financial in N.Y. (Even as its stock price has struggled this fall, it's still up more than 9 percent so far in 2018.) “It’s one of those names everyone’s kind of interested in.”
Other familiar names that often pique investors’ interest: Alphabet (a.k.a. Google, which has a market cap of about $711 billion), Microsoft ($803 billion) and Facebook ($378 billion)—all among the top 10 constituents by weight of Standard & Poor’s 500-stock index.
But size isn’t everything. “People are always concerned with market cap,” says Bradford Pine, wealth advisor in Garden City, N.Y. “But you also have to factor in the way the company is growing and where the company can still go.”
Is it too late to benefit from investing in big market-cap stocks?
Not necessarily. Companies can always do better, and when it comes to brands like Apple, Amazon and other behemoths, “these are the companies that have been solid and consistent winners,” says Pine. If they can continue to grow at a solid rate and substantiate their valuations, they can continue inching higher over time.
So what’s the best way to get in on this?
The price is high for these big individual stocks. As of mid-November 2018, to buy a single share of Apple, you’d need about $185. Alphabet shares are around $1,000 per share, and Amazon is over $1,500. And remember: A single share does not a portfolio make. Plus, you’d have to fork over trading costs every time you buy or sell.
Fortunately, there’s a simple way to get around these obstacles: investing in mutual funds or exchange-traded funds (ETFs). In fact, it’s so easy that you may already own Apple and Amazon, as well as a lot of other familiar names.
If you own a fund that tracks the S&P 500, you can certainly count these popular stocks among your holdings. (Check out Morningstar.com or your fund’s prospectus to get a detailed report of its investments.) While you may not gain as much as if you’d poured all your money into a single stock that soars, your portfolio won’t fall as much if a single stock tanks either.
Even better? Not only do funds like ETFs give you exposure to many of the stocks you’re probably interested in owning, they offer diversification at a relatively affordable price. In a single fund share, you can invest in hundreds of stocks all at once. So you’re more likely to enjoy slow, steady gains over the long term.
This post was updated in November 2018.
May 22, 2017