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Forget the “Magnificent Seven” — Buy These Growth ETFs Instead

There are other ways to get exposure to these hot stocks.

Currently, the ‘Magnificent Seven’ stocks are popular among investors. The group focuses on technology stocks that profit from huge trends such as artificial intelligence (AI) and the shift to digital workflows. This trend can improve the performance of businesses that: microsoft and apologize (two members of the Magnificent Seven) for many years and decades to come.

However, buying these stocks is a risky proposition. Most of these have rebounded over the past year and are trading near all-time highs. This performance may raise concerns that stocks will be purchased just before a recession. There is always a chance that the stocks you choose may underperform their peers.

Instead, consider owning exchange-traded funds (ETFs), which can reduce this diversification risk. that much Schwab U.S. Large-Cap Growth ETF (SCHG -1.39%) It’s a great way to gain exposure to members of the Magnificent Seven without the hassle of building a portfolio of tech giants.

About ETFs

These ETFs are passively managed funds, meaning they simply attempt to replicate the returns of index funds while keeping fees and expenses to a minimum. This Schwab fund charges owners an expense ratio of only 0.04%, compared to the 0.20% or more for other growth-focused ETFs.

The fund owns 250 stocks across all major market sectors. The majority of its assets are invested in America’s largest and fastest-growing stocks, these days the tech giants.

Magnificent Seven stocks are all among the top 10 stocks of the Schwab US Large-Cap Growth ETF, with Microsoft alone accounting for 13% of its asset base. with apple nvidia The next two largest holdings each account for about 10% of the fund’s assets. Amazon, meta platform, alphabetand tesla They round out the list, and together they make up an additional 21% of the ETF’s holdings. In total, Magnificent Seven stocks make up 53% of the fund’s exposure.

Why ETFs are Better

There are several reasons why investors might prefer owning the Magnificent Seven through ETFs like this rather than holding individual stocks. For example, you may already have one or more of these groups in your portfolio and are looking for a way to add exposure without taking on more risk. Schwab ETFs spread exposure across all members of the list, as well as sectors other than technology.

As a result, you’ll be better protected against surprising stock falls that could hit individual stocks or the broader technology industry. Especially after the incredible rally growth investors witnessed last year.

Despite this diversification, it is important to note that this ETF’s returns will likely be weak during the next market downturn. Growth stocks tend to fall first when fears of a coming recession surge.

On the other hand, the Schwab US Large-Cap Growth ETF may perform better during rallies. This fund has returned 42% over the past year. Nasdaq Composite Index34% rally and 27% rise S&P 500 During that time.

There are several ways to gain exposure to Magnificent Seven stocks that allow you to adjust your level of risk and exposure to these tech giants. Adding a growth-focused ETF, such as the Schwab US Large-Cap Growth ETF, to your portfolio is one of the easiest ways to adjust your exposure to the level of risk you are most comfortable with.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development, Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Demitri Kalogeropoulos works at Amazon, Apple, Meta Platform, and Tesla. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platform, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: Buy Microsoft’s January 2026 $395 call and sell Microsoft’s January 2026 $405 call. The Motley Fool has a disclosure policy.

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