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Participant ○○○

How much in FAANGM?

What % of one's stock allocation -  is it ok to keep in FAANGM?

technology had bad time from 2001-2009. From like 2009 to now it has outpaced everything. 

Say if I have 80 % stocks and 20 % bonds allocation. I can easily allocate 40% (1/2 of my 80% stock allocation) to FAANGM. That is like 7% in each of FAANGM stock. (FAANGM = FB, APPLE, AMZN, NETFLIX, Google, Microsoft)

Is it any more risky than say putting it in any active growth fund?

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Explorer ○○○

Re: How much in FAANGM?

 

To get some idea of what is reasonable, I just looked at the holdings of a market cap weighted S&P 500 index fund.  It turns out that the companies you mention constitute 20% of its holdings.

To me that gives some sort of benchmark.  I’d probably not want more than about 30% of my equities in those stocks then, which would be an overweight of the index by a factor of 1.5.  Your proposal of half of your stocks is too much of an overweight for me.

If what is attracting you to these stocks is that they’re growth companies which feel related to tech, maybe a diversified growth fund with tech holdings could replace some of the FAANGM holding.  Something like Vanguard’s growth index or one of the excellent growth funds from T Rowe Price or Fidelity.

 

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Participant ○○○

Re: How much in FAANGM?

This is what I think about this.

https://youtu.be/rblt2EtFfC4

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Frequent Contributor

Re: How much in FAANGM?


@waffle wrote:

What % of one's stock allocation -  is it ok to keep in FAANGM?

technology had bad time from 2001-2009. From like 2009 to now it has outpaced everything. 

Say if I have 80 % stocks and 20 % bonds allocation. I can easily allocate 40% (1/2 of my 80% stock allocation) to FAANGM. That is like 7% in each of FAANGM stock. (FAANGM = FB, APPLE, AMZN, NETFLIX, Google, Microsoft)

Is it any more risky than say putting it in any active growth fund?


       


@waffle wrote:

What % of one's stock allocation -  is it ok to keep in FAANGM?

technology had bad time from 2001-2009. From like 2009 to now it has outpaced everything. 

Say if I have 80 % stocks and 20 % bonds allocation. I can easily allocate 40% (1/2 of my 80% stock allocation) to FAANGM. That is like 7% in each of FAANGM stock. (FAANGM = FB, APPLE, AMZN, NETFLIX, Google, Microsoft)

Is it any more risky than say putting it in any active growth fund?


      As always “safe” is in the eye of the beholder.

      Personally those types of individual stocks, tech, comprise 11% of our total portfolio value and about 40% of our equity section. This includes VUG to double dip and single dip tech and other areas of growth in addition.

         

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Frequent Contributor

Re: How much in FAANGM?

<delete>

Theorist already made my point better than I planned to.

Holiday

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Frequent Contributor

Re: How much in FAANGM?

Looking back in OP in May, it was not too late (rear view:)

It may be too late to do a major adjustment for that.

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Participant ○○

Re: How much in FAANGM?


@waffle wrote:

What % of one's stock allocation -  is it ok to keep in FAANGM?

technology had bad time from 2001-2009. From like 2009 to now it has outpaced everything. 

Say if I have 80 % stocks and 20 % bonds allocation. I can easily allocate 40% (1/2 of my 80% stock allocation) to FAANGM. That is like 7% in each of FAANGM stock. (FAANGM = FB, APPLE, AMZN, NETFLIX, Google, Microsoft)

Is it any more risky than say putting it in any active growth fund?


@waffle , There are many ways to determine your allocation.  Some use the dividend distribution to drive their portfolio allocation, some use a bucket strategy and many use MPT to anchor whatever allocation method appeals to them.

You will hear terms to justify certain allocations such as ballast or hedging.  Let me introduce a term that is not often used on this forum, Risk Parity.  To borrow the definition used by the author in my link , "The idea behind risk parity is simple: build a portfolio of uncorrelated assets, weighted according to their volatilities." LINK 

While I do not use leverage or high yield bonds,  I've found this article somewhat enlightening.  Googling the term risk parity  will give a broader insight in determining allocations.  

helmut

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Frequent Contributor

Re: How much in FAANGM?


@theorist wrote:

 

To get some idea of what is reasonable, I just looked at the holdings of a market cap weighted S&P 500 index fund.  It turns out that the companies you mention constitute 20% of its holdings.

To me that gives some sort of benchmark.  I’d probably not want more than about 30% of my equities in those stocks then, which would be an overweight of the index by a factor of 1.5.  Your proposal of half of your stocks is too much of an overweight for me.

 


 

+1

 Currently, I have 17.75% of my Large Cap US allocation invested in these companies.

veni vidi vici vti
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Frequent Contributor

Re: How much in FAANGM?


@Bentley wrote:

@theorist wrote:

 

To get some idea of what is reasonable, I just looked at the holdings of a market cap weighted S&P 500 index fund.  It turns out that the companies you mention constitute 20% of its holdings.

To me that gives some sort of benchmark.  I’d probably not want more than about 30% of my equities in those stocks then, which would be an overweight of the index by a factor of 1.5.  Your proposal of half of your stocks is too much of an overweight for me.

 


 

+1

 Currently, I have 17.75% of my Large Cap US allocation invested in these companies.


For me FAANG could be 25% of my equities but the problem is that FAANG stocks are growing so rapidly that the sector just keeps enlarging by leaps and bounds Every week and I don’t want to sell just because FAANGs are more than a fixed percent of equities simply because FAANGs are one of the few sectors that is growing earnings and market share. About a month ago I bought more NFLX at 429 after it sold off from 436 and it promptly declined the next day to 416. Today it is at 501 up 16%. 2 months ago I increased my stake in AAPL buying at 303.5 for long term growth. Today its at 379 up 20%.  Two weeks ago I bought QQQ at 243. Today it is trading  at 258 up 6%.

So should I sell FAANG/QQQ when they exceed 25% and pocket my short term profits because there will be a correction at some unknown Future time when these stocks will be cheaper or just allow the FAANG/QQQ sector to continue to grow larger under the theory that even after a Future decline they will be at a higher price than they are now and by not selling I would  not have to worry about buying back in at a higher price.

The one stock I will not buy is TSLA Because I don’t understand how a company that builds automobiles which have low profit margins and require a huge capital investment before sufficient autos can be manufactured to generate a profit for investors could be valued at $300B. If someone can explain how the TSLA business model will generate profits I would like to hear it.

Interesting stat for why the high prices on top 5 stocks are 21% of SP 500 market cap. The free cash flow of the same 5 stocks accounts for 21% of the free cash flow of the entire SP 500.

Note: The FAANGs/QQQ are in a Roth IRA for which no tax will be paid.

.

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Participant ○○○

Re: How much in FAANGM?

The big question in the late 1990s: QQQ or SPY?

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