Retail investors don’t need the same stock concentration as major indexes to perform well and should avoid trying to match them, Liz Ann Sonders suggested this week.
“You want to make sure you don’t have similar concentration to what exists in the index, … you don’t need to to perform well,” Sonders, chief investment strategist at Charles Schwab, said Thursday on CNBC’s “Closing Bell.”
“One of the biggest misperceptions out there is that for the individual investor the only way for them to perform well is to be in those mega-cap names,” she said.
“That may be more of an institutional problem,” for someone running a fund benchmarked to a cap-weighted index, said Sonders. “It’s not the case for individual investors.”
She cited “a lot of opportunities” in S&P 500 and Nasdaq equities besides the Magnificent 7 mega-cap tech stocks, noting that among the S&P’s top 10 performing stocks year to date, only one is in the Magnificent 7.
For investors looking to take advantage of market opportunities, Schwab recommends staying up in quality — companies with good profitability, return on equity and cash flow — she said.
“That’s how we’ve been telling investors to navigate this unique market,” said Sonders, who noted there are other times when investing in lower-quality companies makes sense.