There is a new acronym floating around Wall Street and investing circles. FANG stocks – Facebook, Amazon, Netflix, or Google. Of course, Google recently changed its name to Alphabet, but FANA doesn’t have the same bite as FANG.
But, what are FANG stocks? And, more importantly, should you invest in them. I’m here to tell you that you should stay away from buying these four stocks individually. You probably already own them and don’t even realize it.
What Are FANG Stocks?
What are the FANG stocks? And, why are they so hot on Wall Street right now?
FANG stands for (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Alphabet (NASDAQ:GOOG). They are the tech darlings of the investing world. And, they’ve taken on a fevered pitch with the television pundits recently. Most of that is due to their incredible returns in 2015.
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Facebook, Amazon, Netflix, and Google have provided great returns in the market in 2015, gaining 36%, 120%, 162%, and 45% respectively in the last 12 months. The S&P 500 index has added a lackluster 1.5% during the same timeframe.
CNBC Mad Money host Jim Cramer coined the phrase FANG stocks. But, he’s not always happy with them and how they overshadow the rest of the market at times. He’s often said that FANG stock investing is bad for investors.
You Already Invest In FANG Stocks
Believe it or not, but you most likely already invest in Facebook, Amazon, Netflix, or Google stocks. They are now included in most of the major indexes that investors use.
So, if you invest in an S&P 500 index in your 401k retirement plan from your employer, you area already investing in all four companies. They are each in the index already.
The S&P 500 is a stock market index based on the market capitalizations of the 500 largest companies listed on the NYSE or NASDAQ. All four FANG stocks are listed on the NASDAQ.
The S&P 500 index is capitalization-weighted based on the number of shares available for trading, the float. Movement in the prices of stocks in the S&P 500 with higher market capitalizations from the number of shares available for trading (i.e. the float) have a greater impact on the value of the index than do companies with smaller market caps.
Facebook is currently ranked 10th in market capitalization in the S&P 500 index. Amazon is #7. Google is 11 and 12. And, Netflix is 83. This shows that when these companies at the top move – so does the overall market in many cases.
Many of us already own these stocks in our retirement plans. It may not be the best idea to buy them individually too.
What Else To Invest In Instead
First and foremost, you most likely want to invest in your employer’s 401k retirement plan. This is especially true if they have a company match. Most 401k plans invest in index funds that mirror the overall market like an S&P 500 Index Fund or Russell 2000 fund.
You should maximize your contributions to your 401k plan. You should also invest 15% of your income in good growth mutual funds, which is Dave Ramsey’s Baby Step 4. I’m also a huge fan of maxing out your Roth IRA contributions after you take advantage of your employer’s 401k company match.
FANG stocks can be a great investment. They have proven to be a great investment this year. But, will their run continue?
Many of us already own these stocks in our retirement plans. It may not be the best idea to buy them individually in our brokerage accounts too.
Investors should be conscientious about what they are already invested in. You do not want to become over weighted in any one stock – even if it is a great one.
What about you? Do you invest in Facebook, Amazon, Netflix, or Google outside of your retirement accounts? Why? I’d love to hear your thoughts.