Should You Buy the Top 10 Companies in the US? Ep #171

Everyone is familiar with the top 10 companies in the US. We are talking companies like Apple, Microsoft, Google, Facebook, etc. But should you have a large amount of money in the top ten? They have all done really well the last 5–8 years. How many of the top ten biggest companies should you have in your portfolio—if any? I share my thoughts in this episode of Best in Wealth!

Outline of This Episode

• [1:12] What did you do for Christmas?
• [2:51] The biggest companies in the US
• [5:04] Before reaching top ten status
• [9:46] After reaching top ten status
• [12:28] Stop chasing the biggest stocks

The performance of the top 10

The S&P 500 consists of the largest 500 companies in the United States. It has averaged 10% per year in the last 95 years. How have the top 10 companies done compared to the S&P 500?

How did companies perform 10 years before they reached top-10 status? The top 10 averaged 10% per year better than the benchmark—almost 20% per year—before reaching top 10 status.

What about five years before they hit the top 10? The returns were 19% higher than the S&P 500 (on average). If you can figure out who the top 10 companies are 5 years before they hit the top ten, you may do 20% better than the benchmark. Even better, three years before they hit top ten status, they performed 24.2% better than the benchmark. As these companies grow really quickly they garner awesome returns.

But the difficult part? You have to figure out who these companies are well before they reach the top 10.

After reaching top ten status

Most people chase the top 10. They look at past returns and expect those to be future returns. But is it worth it? Three years after reaching top ten status, these companies are still doing better than the S&P 500—but only 0.07% better. Five years after reaching top ten status, companies have lagged the S&P 500 by an average of 0.6%. 10 years after reaching top ten status, they lag the S&P 500 by 1.5%. You would be better off investing in the S&P 500 versus the top ten companies.

Intel posted average annualized returns over the benchmark of 29% in the 10 years before it hit the top ten. It underperformed the market by almost 6% per year after hitting the top ten. Google’s returns were cut in half after hitting the top ten. If you finally invested in them, you are chasing returns.

Stop chasing the biggest stocks

When you chase past performance, you are likely losing money. You cannot afford to be a loser when you are taking care of your family. You must be in an investment philosophy that gives you the best chance for success. Chasing the top ten biggest companies is a loser’s game. What do you do instead?

Develop a strategy that you can stick with that is not based on chasing performance. It must have discipline at its core. You will be set up for when returns start pouring in. Too many people do not stay disciplined and chase returns they are not seeing. That is the last thing you can afford.

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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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