Index Investing: Why Predicting the Next Amazon Isn’t Necessary for Investment Success

I remember the first time I ordered something from Amazon. The year was 2009, and it was generally considered scary to put a credit card number out on the world wide web.

The package appeared at my door two days later like magic, and I have been a happy customer ever since. In 15 years, the world has come a long way.

Today, technology companies like Amazon dominate the lists of the largest and most successful companies. So much so, that when we look to the future, it is hard to imagine a world where other companies eventually surpass their greatness.

The truth is, this has always been the case. The current dominant companies, just like sports dynasties, always seem like they will be on top forever. History tells us, rarely, if ever, does this happen.

Take a look at this chart comparing the largest companies today versus fifteen years ago when I made that first exploratory Amazon purchase.

It might be surprising that only one, Microsoft, remains in the Top 10 and the types of industries represented are also quite different. The technology sector has blown past the leading oil, industrials, and banking companies that topped the list in 2009. Gazprom, the Russian oil giant, has been de-listed in the United States, and GE and others have fallen on hard times.

Fifteen years ago, those companies seemed just as unbeatable as the technology companies of today. Looking back, the list has drastically changed with each decade.

As we look to the future, we must ask ourselves if we are now in a time that is indeed different. Will these particular companies be the ones that break the trend and finally lead for many years to come? If they are not, who might surpass them?

Artificial intelligence has been a hot topic lately. Perhaps one of the emerging AI companies might grow into the next juggernaut or could it be another industry that doesn’t yet exist?

However, it might not be a new company at all. Apple, the largest company today, will celebrate its 50^th anniversary soon and it was not even in the Top 10 in 2009.

Predicting the future success of individual companies is hard.

What can we do?

The good news is that we do not need to predict what the leaders of the next 15 years will be. Owning index-like funds, as opposed to individual stocks, takes away the need to do that. The new winners will lead the growth of the indexes as they have always done. If history breaks, and the technology companies of today continue their leadership indefinitely, the same result will occur.

The key is to stay invested and stick to a plan that allows you to weather the inevitable bumps along the way. Great companies will continue to work for you, and over time, this approach can help you build the life of your dreams.

There will always be unexpected challenges, but knowing you have a strategy that doesn’t rely on guessing the next big thing can be incredibly reassuring. I look forward to seeing how it all unfolds, and rest easy knowing we do not need to find the next Amazon to succeed.

Do you have a financial plan in place ? If not, give RK a call and let’s get you and your family started on the path to financial freedom.

Chase Kerby, CFP®, AIF® is a Senior Advisor with Rather & Kittrell.