If you follow global markets, you’ll no doubt have heard about the so-called “Magnificent Seven” of the US stock market.
These tech giants dominated the America market in 2023, returning 107% according to CNBC (compared to 27% growth in the MSCI USA Index).
The Magnificent Seven’s hold on the market was so great that its combined market cap would have made it the second-largest country stock exchange in the world. The Guardian confirmed last year that on one global index, the group had the same weighting as the UK, Japan, Canada, China, and France combined.
And then, after a July 2024 peak, came the fall. The Magnificent Seven’s value dropped by $2.3 trillion.
Keep reading to find out what lessons this can teach you about your investments, from the danger of chasing trends to the importance of diversification.
The Magnificent Seven comprises some of the largest tech firms in the world
Deriving their nickname from John Sturges’ 1960 western starring Steve McQueen, Yul Bryner and Charles Bronson, the stock market group comprises:
- Alphabet (formerly Google)
- Amazon
- Apple
- Meta (formerly Facebook)
- Microsoft
- NVIDIA
- Tesla
Like the Hollywood heavyweights they are names for, the Magnificent Seven tech firms are made up of household names, representing some of the most profitable businesses in the world. In fact, Microsoft’s valuation of $2.859 trillion saw it overtake Apple as the world’s most valuable business at the start of 2024.
Opting to invest in these giants might have seemed like an obvious choice. But past performance is no guarantee of future success.
Just as Sturges’ classic was itself a remake (of Akira Kurosawa’s 1954 film, Seven Samurai), the markets have seen big names rise and fall before. Trends come and go, from the dot-com bubble to the 17th Century tulip boom.
The Dutch East India Company, founded in 1602, reached a valuation of around $7.9 trillion in today’s money (two-and-a-half times that of Apple) before it went bust in 1799.
2 important investment lessons the Magnificent Seven can teach you
1. Diversification is key so don’t overload on tech
Diversification is key when investing for the long term. By spreading your funds across different asset classes, geographical regions, and sectors, you spread the risk you are exposed to. A drop in one area will hopefully be offset by a rise in another.
The success and saturation of the Magnificent Seven fly against this principle. Hargreaves Lansdown confirms that this “big seven” forms around 24% of the S&P 500. And many of the remaining companies are tech-based too.
Source: Hargreaves Lansdown (S&P Dow Jones)
The impact of the Magnificent Seven’s recent fall to an investor too heavily weighted in the tech sector, or whose funds tracked the S&P 500, is all too clear.
At Globe IFA, we can help you match your asset allocation to your risk profile, ensuring your diversified portfolio is always aligned. We’ll also ensure that your funds are held across geographical regions and sectors.
Remember that market dips are inevitable and can occur across the markets. Diversification, though, and a firm focus on a long-term goal, will help you to mitigate the impact of these volatile periods.
2. Your goals are individual to you so don’t chase trends
You’ll no doubt have read about the recent dip in the Japanese market, highlighting the short-term volatility already discussed.
As we have seen, these dips are an inevitable part of the investment process. They are to be expected, but how you deal with them is vitally important.
Your long-term investment plan is aligned with your personal circumstances, attitude to risk, and goals. The likelihood of future dips is in-built. It’s the reason why your plan is long-term in the first place.
When the market falls, stay calm and avoid knee-jerk reactions. By panic-selling stock during a downturn, you’re effectively turning a paper loss into a real one. Worse still, you won’t be invested when the markets recover and prices rise.
Also be wary of chasing trends. Your plan is individual to you and aligned to your goals. It follows that what’s right for a fellow investor (with different goals and a different risk profile) won’t necessarily be right for you.
Try to ignore the noise of global events and the financial press and stay focused on your goals. At Globe IFA, we can help here.
With decades of experience in the markets, we’re always on hand to provide advice or reassurance. Be sure to speak to us if you have any concerns.
Get in touch
If you have any questions or you’d simply like reassurance about your long-term investment plans, please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
