The theme this week on the Retirement Quick Tips Podcast is: Why Your Stock Portfolio Is More Risky Than You Think

A recent article in the WSJ titled: “Gigantic Stocks Are a Reason to Worry” says: As Apple, Microsoft and Amazon cross the trillion-dollar mark, index investors should be concerned about concentrated portfolios”.

The article makes the argument that one important reason why you should worry is that “even passive investors are increasingly betting on just a handful of stocks vulnerable to a dud product or regulatory setback. Thinking of it in terms of buying an entire business is helpful: Would you rather own the iPhone maker or all of McDonald’s, Walmart, AT&T, Philip Morris, Berkshire Hathaway, Procter & Gamble, JPMorgan Chase, Starbucks, Boeing, Deere and American Express combined? A lot would have to go wrong all at once to torpedo that diversified group of blue-chip stocks.”

This means that the biggest winners also tend to become overvalued over time, as they can only stay at the top for so long and tend to start underperforming as their growth levels off and normalizes. 

Apple is a good example of this. The stock only crossed the $1 trillion valuation in 2018. When this happened, Apple was the first company ever to do it, but since then, it soared into $2 trillion territory in 2020, and took just another year and ½ to grow by another $1 trillion to become the first ever $3 trillion company. 

It took Apple 40 years to reach a $1 trillion valuation. It took only another 3 years to grow by another $2 trillion. Does that kind of growth sound sustainable to you? 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.

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