You probably own one of these companies. For many Americans, 401(k) investment plans may as well be written in another language. Aside from the general idea of equity funds, mutual funds, bond funds and relative…
You probably own one of these companies.
For many Americans, 401(k) investment plans may as well be written in another language. Aside from the general idea of equity funds, mutual funds, bond funds and relative strategies and risks, many 401(k) account holders may have no idea which stocks are in their plan and how much they own. Mutual funds and exchange-traded funds, known as ETFs, are popular 401(k) investments because these investments provide diversification. But some of the most popular funds have surprisingly similar stock holdings. Here’s a look at nine stocks that are likely overrepresented in your 401(k) account.
Any mutual fund or ETF that is market-cap weighted will have the world’s only $1 trillion public company as the top holding. The two most common 401(k) mutual funds — the Vanguard Institutional Index I (VINIX) and the Fidelity 500 Index Fund Investor Class (FUSEX) — have Apple stock as their largest stock holding. The SPDR S&P 500 Index Fund (SPY) and the iShares Core S&P 500 ETF (IVV), the two largest ETFs, also have AAPL in the top position. In each of these four funds, AAPL represents between 4 and 4.2 percent total weighting.
Microsoft is closely behind Apple among stocks held in these four popular 401(k) funds. With its $857 billion market cap, Microsoft is the second-largest company in the S&P 500 index and represents around a 3.5 percent weighting in each of these four funds. MSFT will also be heavily weighted in any technology-specific funds or funds focusing on high-growth stocks. Microsoft’s 1.6 percent dividend yield also means it’s heavily weighed in dividend funds and often included in 401(k) plans.
Amazon has taken over the retail world and the cloud computing world, and it’s likely taking over your 401(k). Amazon’s $850 billion market cap has earned it a 3 to 3.2 percent weighting in each of the four largest mutual funds and ETFs, but its staggering growth record means it may soon challenge Apple as the most heavily weighted fund holding. Over the past three years, Apple’s market cap has grown by 86 percent, Microsoft’s has risen by 161 percent and Amazon’s has skyrocketed by 392 percent.
The Class A (voting rights) shares and Class C (no voting rights) shares of Google parent company Alphabet make up a combined weighting of around 2.8 percent among the four big 401(k) funds. In addition to heavy weightings in any market cap-weighted funds tied to the S&P 500, Alphabet stock is a top holding in high-growth funds. It’s often included in any aggressive, risk-tolerant 401(k) plans. For example, Alphabet has a 4.8 percent weighting in the popular American Funds Growth Fund of America (AGTHX), which has $184.3 billion in total assets.
Warren Buffett’s Berkshire Hathaway creates a Russian doll effect within many Americans’ 401(k) accounts. In addition to its 1.6 to 1.8 percent weighting in the four funds mentioned, Berkshire itself is a holding company that invests in other stocks. Not surprisingly, Apple is currently Berkshire’s top stock holding, meaning Berkshire adds even more Apple exposure to the typical 401(k) account. Berkshire also owns a number of private subsidiaries, such as Geico, McLane Company Inc. and Burlington Northern Santa Fe.
Facebook represents between 1.5 and 1.6 percent weighting in each of the four 401(k) funds mentioned, making it one of the largest retirement account holdings in the world. Up until Facebook hit some bumps in mid-2018, the company was keeping pace with Amazon in the growth department, quadrupling its market cap in less than five years. While Facebook’s namesake platform may be losing steam with younger social media users, it’s still popular among older users and younger users are flocking to its Instagram platform.
It’s been a tough decade for bank stocks, but you wouldn’t know it by looking at JPMorgan stock. JPMorgan has a 1.5 to 1.6 percent weighting in each of the four big 401(k) funds. Ten years after regulators criticized big American banks of being “too big to fail,” JPMorgan’s market cap is 167 percent larger at around $373 billion. JPMorgan reached $2 trillion in total assets in early 2018. An environment of banking deregulation and rising interest rates has been good news for its margins.
Lack of clarity on health care reform and potential drug pricing legislation has weighed on Johnson & Johnson in recent years. The stock hasn’t provided as much excitement as some of the other top 401(k) holdings. But with roughly a 1.5 percent weighting in each of the four funds mentioned, JNJ stock is likely the largest health care holding in many Americans’ retirement accounts. Johnson & Johnson also pays a generous 2.4 percent dividend. In the popular Vanguard Dividend Appreciation ETF (VIG), JNJ stock is the third-largest holding with a 4.2 percent weighting.
As recently as 2011, Exxon Mobil was the most valuable public U.S. company, but a technology boom and an oil market crash dropped Exxon to ninth place. But with a $341 billion market cap and a 4.1 percent dividend yield, there’s a good chance XOM stock still plays a major role in Americans’ retirement investments. Exxon has roughly a 1.45 percent weighing in the largest S&P 500 funds and a 2.7 percent weighting in the popular Vanguard Value Index Fund (VIVAX).