Equity concentration: Not a new phenomenon
January 29, 2024
January 29, 2024
The recent strong performance of the "Magnificent 7" stocks, including Amazon, Apple, Microsoft, Nvidia, Alphabet (Google), Meta (Facebook), and Tesla, may lead your clients to question their diversification strategy. However, a Vanguard Investment Advisory Research Center analysis suggests that equity concentration is not a new phenomenon and overreacting may not be necessary.
This is a great coaching opportunity with clients. Underweighting can result in significant tracking error compared with your clients' benchmark, and the longer and wider the tracking error, the higher the likelihood that your clients may not achieve their desired investment outcomes. Additionally, it increases the risk of clients terminating their relationship with your practice.
Use this downloadable PDF to easily communicate this important investment concept to your clients.
Underweighting can have a detrimental impact on returns. Use our client-approved piece to easily communicate this important investment concept to your clients.
All investing is subject to risk, including possible loss of principal.
Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss. Past performance is not a guarantee of future results.
Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
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