Apple may be dangerous to your financial health.

A month ago, we discussed the dangers of holding concentrated positions in large, “reliable” companies like Apple.

Since then, Apple has lost nearly $400 billion of market value.

Now, we see four reasons to diversify any large holding Apple.

They are:

1. China exposure

2. Recession risk

3. Earnings risk

4. Multiple compression

China

Apple is heavily dependent on China.

Covid and growing criticism of China have made that position extremely precarious. And according to CNN, “reducing [Apple’s] significant dependency on China could take years, if it ever happens at all.”

Recession

According to The Wall Street Journal top economists now expect a recession, with 2023 forecasts “increasingly gloomy.”

When the economy is in recession, consumer spending falls. Apple’s products are sensitive to consumer spending, and the company could see demand drop sharply.

Earnings Risk

Earnings are what is left after expenses are subtracted from revenues. Apple earnings could get squeezed from both sides, as China problems raise costs, and potential recession cuts revenues.

Multiple compression

In bear markets, the price to earnings ratio of stocks often falls. That can create a double whammy for stocks like Apple. If earnings fall, and the multiple decreases, the result could be a significant fall in the price of the stock.

Diversification Without Tax

If you have clients with a large holding in Apple, chances are they have big gains. And chances are one excuse they have for not diversifying is the reluctance to pay big capital gains taxes.

For these clients, a 664 Stock Diversification Trust could be their best option.

664 Stock Diversification Trust

Here’s how it works. A stock owner contributes stock to the trust. The trust then sells the stock, tax-free. The proceeds become AUM, and the advisor invests the trust assets.

If you think a 664 Stock Diversification Trust could be right for one of your client situations, please reach out to us. You can use the form on our website to schedule a meeting with us, or call our office and ask for Connor or Ryan.

You may also be interested in our weekly webinar on concentrated holdings, where we discuss the best ways to advise clients with highly concentrated stock positions. You can register for, or request a recording of, that webinar using this form on our website.