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.

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.

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 return was -1.5%

If you look at all of the companies in the S&P 500 right now compared to 50 years ago, the companies are completely different. Companies go up and companies go down. Will the Magnificent Seven continue to perform?

Should you Invest in the Magnificent Seven?

It is hard to look at the performance of these companies and not believe that it will not continue. Tech is booming. But we do not know the future. What we do know is that timing the stock market does not work. You do need to stay in the stock market. You do need an investment plan that states what percentage is allocated to each asset class. You need a plan that you stick to. You cannot move things around based on recent high performance.

Resources Mentioned

• Magnificent 7 Outperformance May Not Continue

Connect With Scott Wellens

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Podcast Disclaimer:

The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.

About the author, Scott Wellens

Scott Wellens, CFP® is an investment advisor and founder of Fortress Planning Group. After earning his Bachelor of Science degree from the University of Wisconsin-Oshkosh, Scott quickly ascended to become a Vice President of North American Sales at a major regional provider of telecommunications infrastructure. While financially successful in this role, Scott searched for ways to pursue his passion related to financial literacy and providing financial freedom for both his own family and others. During his search, Scott became curious about the significant gap he found in the financial services sector: he was unable to find a comprehensive financial planner that maintained a family stewardship lens without being attached to financial products. Scott decided to fill that gap by creating his own planning firm that maintains a strong passion for comprehensive, unbiased wealth planning that is genuinely client-centered.

Scott resides in Menomonee Falls, WI with his family. He is the father of three active and independent daughters who keep him on his toes. Scott is an active community member, serving on the Hamilton Education Foundation Board, serves as a Dave Ramsey Financial Peace facilitator and leads the All Pro Dad’s group at their local elementary school. Scott enjoys spending his free time visiting state parks with his family, reading, and watching the Milwaukee Bucks and the Green Bay Packers win ball games.

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