Magnificent Seven Stocks: Should You Invest?

The “Magnificent Seven” stocks include Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). The Magnificent Seven stocks were first identified as “monopolistic U.S. tech stocks” by Bank of America investment strategist Michael Hartnett and his team in May 2023 in an internal report^[0]

.

In 2013, CNBC’s Jim Cramer, along with technical analyst Bob Lang, coined the term “FANG” to refer to Facebook, Amazon, Netflix and Google. “FANG” became “FAANG” with the addition of Apple in 2017.

As time went on, Google became Alphabet and Facebook became Meta. Microsoft and Nvidia were added to the group due to their impressive performance — and what was turning into an unwieldy acronym became the “Magnificent Seven.”

The Magnificent Seven stocks have all been identified for their outsized performance. For the last year, five out of seven outperformed the S&P 500 index. The top performer, Nvidia, has returned nearly 206% year to date, compared to the 24% return of the S&P 500 overall.

But past performance doesn’t guarantee future returns — and the individual stocks that have performed well over the last year may not perform well in the future. Tesla, for example, has performed far worse than the S&P 500.

If you invest in a 401(k) through work or invest in a mutual, index or exchange-traded fund, it’s likely that you already own shares in at least some of the Magnificent Seven stocks. These stocks are robust performers that are often included in large market indexes such as the S&P 500.

If you don’t already have the Magnificent Seven in your portfolio through funds and you want to own shares in these companies, you have a couple of options for how to do it. But first, in order to buy any stock (or fund) you need to open an investment account, also known as a brokerage account. There are several types of investment accounts, and some have great tax benefits, so it’s worth investigating what kind you should get before diving in.

Option 1: The first option you have for buying the Magnificent Seven stocks is to simply buy stock in each of the seven companies — Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA).

Option 2: The second option is to invest in all seven companies at once through a fund. One such fund is the Magnificent Seven exchange-traded fund (MAGS)^[0]

Here’s how MAGS performed against SPY over the last year.

Option 3: The last option is to simply invest through an S&P 500 index fund. A fund that tracks the S&P 500 invests in about 500 of the biggest companies in the U.S. — including all seven of the Magnificent Seven.

When looking at the chart comparing MAGS to SPY, it may seem obvious that investing in MAGS is a better option. And it’s true that the Magnificent Seven did, when combined, outperform the S&P 500 considerably over the last year. But by investing in 500 companies instead of seven, you increase your diversification, decrease your risk and safeguard against volatility in individual sectors.