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. Recently, Apple was also added, causing the acronym to be rewritten as FAANG in many instances.
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?
When FANG stocks first came onto the scene, many investors were excited about these new companies with the potential for rapid growth. FANG stocks are now some of the most sought-after investments in America.
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.
Facebook, Amazon, Netflix, and Google 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, you are most likely already invested 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 are 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) has 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 do 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.
FANG Stock Valuations
FANG is an acronym for the four most popular technology stocks: Facebook, Amazon, Netflix, and Google. These are all great companies with a lot of growth potential. However, FANG stocks can be risky to invest in because they have high valuations.
FANG stocks are great companies, but they’re risky investments because they have high valuations. One of the significant risks with FANG stocks is that they’re expensive. FANG stocks are more volatile than other stocks because FANGs have a higher possibility of becoming overpriced.
FANG stocks don’t offer dividends, so investors won’t get any income from them if they invest. FANG stocks are riskier than other investments because of their high valuations. FANG stocks are popular and typically do well in the market, but they can be hard to value because FANG companies may not have earnings that reflect their high market value. FANG stocks are great companies, but there may be better options for people who want to invest.
Many FANG stock is now trading at a higher price than the company’s net asset value. FANG stocks are not exceptions to this either. FANG stocks are also seeing this trend. FANG stocks are different from other companies in one way, which is that FANG stocks have priced themselves out of the market for many investors.
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.
It would help if you maximized 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 taking 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 overweight in any one stock – even if it is a great one.
If you’re looking for places to keep traditional investment accounts, you might want to check out investing with M1 Finance, Robinhood, Betterment, or Stash Invest.
M1 Finance simplifies the investment process for beginning and experienced investors alike. M1 Finance does not charge a fee per trade, and it gives you the option of taking more control over your investments if you want them (and less if you don’t). M1 Finance is great for buy and hold investors.
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.