The restrictions of Mutual Funds
Did you know that equity mutual funds can only allocate up to 5% of capital to an individual stock? Most equity mutual funds limit this amount so that they do not get concentrated in one individual stock. This can become a bit of a limitation as money comes into the fund via deposits from 401(k) plans or individuals. For example, if you look at one of the largest held mutual funds in 401(k) plans, American Funds Growth Fund of America, a equity fund with top holdings are Meta, Amazon and Microsoft. Once they’ve hit that upper limit of their allocation maximums, what do they do?
They begin to look for companies that are not near the size of Microsoft, Amazon and Meta.
Did you know that in 1929 only 15% off retail investors owned stocks compared to today’s 55%. Much of that money is within 401(k) or other types of retirement plans allocate to the S&P 500 Index fund. The top holdings in the SP500 are the following:
The reason I’m telling you this is because the way we invest today is much different in the past fundamental analysis approach. If you want to know what stocks are going to takeoff in the future, compare the SP500 top holding with the top holding of the largest mutual funds and find the discrepancy’s. #Nvidia use to be one of those along with #Tesla.
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