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), and continues to grow to record-high valuations. In early May, its market cap briefly surpassed $800 billion—making it the first U.S. company to reach that milestone—and some analysts think it may hit $1 trillion by year’s end.
Sounds like a good company to invest in, 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. “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 $650 billion), Amazon ($457 billion) and Facebook ($427 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. “As long as they continue to grow at a good rate and substantiate their valuations, they can continually go higher.”
So what’s the best way to get in on this?
The price is high for these big individual stocks. As of May 2017, to buy a single share of Apple, you’d need more than $150, and Facebook’s almost as expensive. Alphabet and Amazon shares are closing in on $1,000 per share. 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, 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.
May 22, 2017