Personal Finance

We're in our 50s with a large holding in Apple stock — should we use an exchange fund to diversify?

Joey Frenette

Published: December 27, 2024 9:04 am

Diversification is one of the very few so-called “free lunches” to be had on the stock market. And though it’s easy to lose track of one’s portfolio weightings after one of the best multiple-year bull runs in quite a while, it’s never too late to rebalance, derisk, and readjust one’s portfolio to ensure proper diversification.

Of course, you’ll have many who argue that diversification is overrated and that concentrating holdings in just a handful of stocks can improve one’s chances of beating the S&P 500. Some big-name investors on Wall Street, including Pershing Square Capital Holdings’ Bill Ackman, who always seems to have less than 10 stocks in his legendary fund, appear to be a bigger fan of putting more money into his best ideas rather than spreading them across ample good, but not the best, names.

While it is possible to “overdo” it when it comes to diversification, I still think it’s far better to risk being overdiversified than underdiversified. Just ask any financial advisor, and they’ll tell you just how important it can be for someone gearing up for retirement. Sure, you may find it more challenging to beat the market with more than 20 stocks in the portfolio, most of which you’ll struggle to keep up with. However, at the very least, your portfolio won’t be at risk of implosion should a single stock crumble over company-specific woes while the rest of the market inches higher.

In this piece, we’ll check in with a couple in their 50s sitting on a fairly sizeable position in shares of Apple (NASDAQ:AAPL). With Apple stock roaring back to new all-time highs along with other top-performing Magnificent Seven members, now seems like a good time to think about making moves to re-diversify their portfolios.

Warren Buffett has been selling a lot of Apple of late. Investors should take notice.

Undoubtedly, AAPL stock is close to the priciest it’s appeared in recent memory, recently flirting with 42 times trailing price-to-earnings (P/E). Even legendary investor Warren Buffett has been hitting the sell button on shares in the iPhone maker in recent quarters, most recently slashing his stake in the iPhone giant by half earlier this year. It’s tough to know for sure why Buffett has been selling so aggressively of late. Still, one thing is for sure: Berkshire’s public stock portfolio is better diversified today than it was a year ago when Apple made up close to half of Berkshire’s portfolio.

Of course, Buffett likely left billions on the table when he sold when he did, as AAPL shares have continued moving higher into year’s end.

In any case, Apple remains Berkshire Hathaway‘s (NYSE:BRK-B) largest holding, comprising just shy of 26% of the stock portfolio. Arguably, having a quarter of one’s portfolio in a single stock is still excessive. And while only time will tell if the selling is over with, I still think investors should take a cue from the Oracle of Omaha as Apple’s multiple continues to expand.

Diversification and derisking only make sense for a couple in their 50s.

Now, back to the 50-something couple who’s done extraordinarily well by holding their Apple stake. While it’s never easy to take profits off big winners, especially if it entails sparking a significant tax burden, I still think selling at least some Apple stock makes sense as the couple looks to rebalance and bring their portfolio’s weightings back to a level they’d be more comfortable with. Undoubtedly, using the proceeds from an AAPL share sale to invest in index funds — like the Vanguard S&P 500 ETF (NYSEARCA:VOO) — is a simple and speedy way to diversify.

Of course, like Buffett, you could miss out on further gains if Apple stock continues surging higher in 2025. It’s a Magnificent Seven company for a reason! Either way, I believe discipline and proper diversification should stand above all else, especially for a couple in their 50s who should start getting serious about securing their retirement and removing potential risks (think single-stock risk) that could derail their plans.

As always, check in with a financial advisor or tax professional to ensure you’re going about the rebalancing in a tax-efficient manner. If you’re going to take a big gain, you may also wish to do some tax-loss selling to offset such gains and lower your tax bill.

The bottom line

This couple in their 50s may wish to follow in the footsteps of the Oracle of Omaha by selling some of their hefty Apple stake. Heck, they’ll get a better selling price than Buffett today, with AAPL shares currently going for close to $255 per share. Additionally, I’m an advocate for rotating into an S&P 500 index fund, like the VOO. It’s almost like an instant portfolio diversifier for those who’ve seen individual holdings grow to comprise well over 10% of their portfolios.