What Are FAANG Stocks—and Why Does Everyone Want Them?
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"So if you own any stock funds, you can check your fund’s prospectus to see how much you have in FAANGs already."

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On Wall Street, FAANG is spelled with two As, and it's meant “big win” for lucky shareholders—which likely includes you. FAANG stands for Facebook, Amazon, Apple, Netflix and Google (representing parent company, Alphabet), a collection of tech companies so widely followed by investors that the media came up with an acronym for them.

Those stocks have always gotten a lot of attention. But you've probably noticed them in the news even more lately. First Netflix and Facebook reported disappointing revenues, sending shares down sharply last week. (In one day alone, Facebook lost more than $100 billion in market value—the biggest one-day drop by a U.S. stock ever.)

Then Amazon, Google and Apple came through with better-than-expected earnings, easing concerns and turning stocks back around again. The last to release earnings, Apple announced Tuesday it had earned $53.3 billion in revenue last quarter, $1 billion more than analysts had expected. That sent its stock up more than 3 percent in after-hours trading and prompted murmurs that it could be the first U.S. company to hit a $1 trillion valuation. 

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Why are all these stocks such a big deal?

Each company has been known to move markets and transform not just their own industries, but also how we all live.

Consider Amazon. (It was the original “A” when Jim Cramer first coined the term to quickly refer to the group of fast-growing tech stocks; Apple was added later.) The online megastore has made shopping fast, easy and accessible, crushing its competition and completely changing the way retail operates. Many consumers now expect to be able to purchase anything and everything—from clothes, groceries and gadgets to a personalized “Game of Thrones” music box—anytime, with one click and free shipping.

Amazon’s investors may have equally high expectations. Five years ago, the company’s share price was around $300; in late July, it'd topped $1,800 a share. And with a current market capitalization of about $860 billion, it’s the third-heaviest component of Standard & Poor’s 500-stock index, behind Apple and Microsoft.

Even the smallest FAANG member, Netflix, is a heavy hitter. Its market cap is about $150 billion, weighing in at 0.65 percent of the S&P 500. And over the past five years, its shares have skyrocketed from less than $40 in July 2013 to more than $360 in late July.

Together, the five companies make up approximately 13 percent of the index with a collective market cap of nearly $3.8 trillion. So if FAANG was a country, and its market cap was its gross domestic product, that’s big enough to make it the fourth-largest economy in the world.

So, should I buy them?

Well, the group’s history of success certainly warrants consideration, but whether each company can maintain the heady growth is debatable. Case in point: After Facebook released its second-quarter earnings report last week, showing missed revenue targets and slowing user growth, its stock fell 20 percent. 

Then there’s the issue of price: To buy just one share of each FAANG stock, you’d need more than $3,800 total (as of July 26)—and that's on a day when Facebook's price is exceptionally low. Plus, keep in mind that five U.S. large tech stocks doesn’t exactly make for a diversified portfolio.

Luckily, there’s an easier, much cheaper way to buy into FAANG stocks while protecting yourself from any potential slowdown. In fact, it’s so easy that you’re probably already doing it.

Plenty of mutual funds and exchange-traded funds (ETFs)—including index funds that track the S&P 500, of course—count FAANGs among their holdings. So if you own any stock funds, you can check your fund’s prospectus to see how much you have in FAANGs already.

You’ll also notice that these types of funds also give you a stake in hundreds of other companies at the same time. That means you get exposure to the world’s most popular stocks while maintaining a diversified portfolio in one fell swoop—a smart and easy investing strategy to build and preserve your wealth over the long term.

This post was updated on July 31, 2018.

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