Traditionally, people have been advised to have a balance, between stocks and bonds, in their retirement funds, with the bond component gradually increasing over time. And that hasn’t changed; but, the rate at which bonds increase should be somewhat slower today. Over the past decade, inflation has been virtually nonexistent; however, it will return at some point and, as most senior citizens know, health care inflation never really went away!
This post is intended to lay the groundwork for my next one, which will offer some ideas as to how to include a more growth-oriented component to your portfolio. It is not meant to offer investment advice, per se, but to provide some ideas as to a forward-thinking way of adding to the growth in your portfolio.
These ideas are primarily intended for the hands-on, fairly open-minded investor. Before you act upon them: study them; confer with whomever you see investment advice from and, if you do act, perhaps do so gradually!
Let me explain the stock market through the Standard and Poor’s 500 Index, which is composed of 500 large company stocks. Since there are 4,333 publicly traded stocks in the U. S.—between the exchanges and the rarely traded “Pink Sheets”—the 500 stocks in the S & P, at 11.5% of the total, is a substantial statistical sample. The stocks represent ten different industries, as cited below:
Index Break-down by Industry Size
Information Technology 22.26%
Financials 14.55 Health Care 14.49
Consumer Discretionary 12.27
Consumer Staples 9.05
Real Estate 2.91
The stocks represented in most indices are weighted, according to their “equity capitalization,” or relative market value. Please note that the ten largest companies, in the S & P 500, represent 18.85% of the whole Index, and five of the top ten are in Technology:
Ten Largest 10 Companies:Apple Inc. 3.61%
Microsoft Corporation 2.56
Amazon.com Inc. 1.85
Facebook Inc. Class A 1.72
Johnson & Johnson 1.72
Exxon Mobil Corporation 1.65
JPMorgan Chase & Co. 1.56
Berkshire Hathaway Inc. Class B 1.55
Alphabet Inc. Class A 1.33
Alphabet Inc. Class C 1.30
Total for Top 10 Holdings 18.85%
Over the years, most investment advisors have shown clients the Break-Down by Industry and, perhaps, suggested a little more (“overweighting”) or a little less (“underweighting”) in several of the industries. Those incremental changes, never more than a percent or two, were mostly to show that the advisor added value; but, in the long run, the recommended strategy was pretty much to maintain the status quo!
Let me emphasize the preponderance of Technology in the S & P 500 Index of the largest companies in the nation, and keep in mind that only Apple and Microsoft are over 40 years old, and just barely–while the rest are much newer companies. And, while Amazon is considered a Retail company, it owns a robotics company, and it is also the largest source of cloud computing—two of the hottest areas within the technology sector.
The Technology and Health Care industries have consistently been two of the best performers in the Index. The Financial industry is the second largest; however, it has to deal with: the ups and downs of the domestic economy, it must rightfully be heavily regulated, it also has to function within the overall global marketplace and, for the most part, the financial sector adds very little to the overall economy!
In my next post, I will suggest why the investor, who is willing to take-on moderate risk, should consider adding more Health Care and Technology to their investment portfolios.
NOTE: Noted Wall Street analyst, Dick Bove, warns that bank stocks are merely trading on momentum–sort of a follow-the-leader–rather than any really sustenance.