Should You Invest in the Magnificent Seven? Ep #237

BRICS is an acronym that denoted the emerging economies of Brazil, Russia, India, China, and South America. The stock market returns were really good. The economies were expected to continue to explode. So people started pouring into the BRICS. Many people who invested did poorly because they were late to the game. Before BRICS, it was popular to invest in the Nifty Fifty (the 50 most popular companies). News columnists are always looking for the next bright, shiny object. The current “Shiny object” is the Magnificent Seven. What is the Magnificent Seven? How do they perform compared to the US stock market? How is the Magnificent Seven performing year-to-date? Will the stock returns persist? I share what you need to know about the Magnificent Seven in this episode of Best in Wealth. [bctt tweet="Should you invest in the Magnificent Seven? I share some research (and my personal opinion) in this episode of Best in Wealth! #investing #PersonalFinance #FinancialPlanning" username=""] Outline of This Episode [1:27] Investing in the BRICS and the Nifty Fifty [4:07] What are the Magnificent Seven? [7:01] How well are the Magnificent Seven doing? [11:03] Will their high performance continue? [16:54] Should you invest in the Magnificent Seven? What are the Magnificent Seven? The Magnificent Seven consists of seven companies in America that are doing the best. It probably won’t surprise you that the companies are: Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta. These companies have performed very well in 2023. At the end of July, the stock market was doing well. The US stock market return (mostly the S&P 500) was up over 20%. The next few months were horrible. November and December have improved. The S&P 500 was up 24.5% when I recorded this episode. What if we took that 20% return and stripped out the Magnificent Seven companies? The return would go from 20.3% to 10.8%—almost halved. Seven companies—out of 4,000—comprised almost half of the return. Unbelievable. How well are Magnificent Seven doing? These companies have done well in 2023. Secondly, they are so big that when they perform well, it will shock the US Market compared to smaller companies doing well. Ending 12/14/2023, these company’s returns are astounding: Apple: Up 58.4% YTD Microsoft: Up 52.74% YTD Google: Up 48.5% YTD Amazon: Up 71.78% YTD Tesla: Up 132% YTD Facebook: Up 167% YTD Nvidia: Up 238% YTD Isn’t that Magnificent? But we saw outsized performance just like this in the BRICS, when compared to the US stock market. [bctt tweet="How well are Magnificent Seven doing? Will they continue to perform? What does the research tell us? Learn more in episode #237 of Best in Wealth! #investing #PersonalFinance #FinancialPlanning" username=""] Will their high performance continue? The Magnificent Seven have been performing well for a long time. In his article, “Magnificent 7 Outperformance May Not Continue,” Wes Crill and his team share that they do not believe the high performance will continue. Looking at annualized returns in excess of the US market before and after joining the top 10 largest US stocks, starting in January 1927–December 2022. 10 years before, the average return was 12% 5 years before, the average return was 20.3% 3 years before, the average return was 27% However, things changed significantly after joining the top 10. 3 years after, the average return was 0.6% 5 years after, the average return was -0.9% 10 years after, the average...