The Boost: Mega-cap tech stocks in your 401(k)

If you have a 401(k) or other investment account that includes index funds, then there is a high probability you own a significant portion of NVIDIA along with other mega-cap tech stocks like Apple, Microsoft, Google, Meta, and Amazon, even if you didn't specifically choose to invest in them.

This is because these companies make up a substantial portion of the total market capitalization of the US stock market, and index funds aim to mirror the composition of the market they track.

One of the most popular indices to track is the S&P 500. Historically, investing in it was considered a diversified strategy. Many in the traditional finance world (and even outside) have started to disagree.

In addition to the S&P 500 consisting of only the largest market capitalization companies, technology companies represent 30% of the index.

Warren Buffett, however, has long been a proponent of the S&P 500:

“In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there's more money in it for them if they do.” -Buffett in 2021

🧠 What you need to know

Investing in the S&P 500

You may own one of these ETFs or mutual funds that track the S&P 500, including:

  • Vanguard S&P 500 (VOO)
  • SPDR S&P 500 ETF Trust (SPY)
  • Fidelity 500 Index Fund. (FXAIX)
  • Schwab S&P 500 Index Fund (SWPPX)

Have a company 401(k) plan or 529 plan for your children? You’ll find variations of these funds that track the S&P 500 but come with different tickers.

The S&P 500 is up approximately 12% in 2024

In early January, the Mezzi blog covered the 2023 performance of the "Magnificent 7": Apple, Microsoft, Google, Amazon, NVIDIA, Tesla, and Meta. These companies accounted for two-thirds of the S&P 500's 24% return in 2023. Let's see how things are looking for these companies thus far in 2024.

🌐 What’s your total exposure?

On average, these companies are up another 23% in 2024! Their combined weight in the S&P 500 is now close to 28%, up from 26% at the end of 2023. Their weightings as of 5/13, compared to their positions at the end of 2023:

  • Microsoft (MSFT): 7.1%, previously 6.9%
  • Apple (AAPL): 6.1%, previously 6.8%
  • NVDIA (NVDA): 5.1%, previously 3.0%
  • Amazon (AMZN): 3.9%, previously 3.3%
  • Alphabet Class A / C shares (GOOGL): 4.2%, unchanged
  • Meta (META): 2.4%, previously 2.0%
  • Tesla (TSLA): 1.1%, previously 1.8%

Microsoft (up 14.1% in 2024), NVIDIA (up 96.4%), Meta (up 39.1%), and Amazon (up 24.1%), have seen increases in their weightings. Apple’s (up 2.2%) weighting went down primarily due to index rebalancing. Tesla’s stock price decline drove its weighting reduction and it is no longer even a top 10 holding. Berkshire Hathaway, Eli Lilly, and Broadcom all have moved ahead of it.

Why the big jump in allocation to NVIDIA? The stock is up over 90% this year given continued immense demand for its AI chips and thus strong financial performance.  

Tesla, on the other hand, is down nearly 30% due to concerns over slowing growth. Key executives also departed in recent weeks.

What should you do?

Decide on the right exposure for you.

Some believe these mega-cap tech stocks will continue to get stronger and thus grow in size. Artificial intelligence (AI) is viewed as a big opportunity for each of them.

Others believe it is too risky to maintain such concentrated exposure to these seven technology companies and that it’s thus important to diversify away from the S&P 500 by investing in index funds with exposure to non-tech companies, smaller companies, international markets, or different asset classes like bonds and commodities.

Either way, if you have exposure to the stock market, it’s critical to follow what’s happening to these large companies and understanding what it means for your portfolio.

✨ Coming soon

On that note, we’ll soon be opening up early access to a new feature. Mezzi will help you uncover your true exposure to your top holdings, inclusive of your index fund investments, so that you aren’t over-allocated to Apple, NVIDIA, or another major index holding.

Reply “X-RAY” to this email for our early access waitlist.

🤝 How can Mezzi help today?

We regularly hear from users sharing things like:

I didn’t realize NVIDIA had become my second largest holding
I was surprised to learn I was sitting on so much cash.

Use Mezzi to unlock insights for:

  • Concentration and allocation
  • Portfolio and account performance
  • Dividend income
  • Capital gains tax savings
  • Fee savings