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Many investors want to take a bite out of Apple: It was the first publicly traded U.S. company to be worth $1 trillion in value, and nearly two-thirds of Americans own at least one of its products.
But a recent stock split may have made the stock even more appealing: Apple’s shares experienced a four-for-one split, bringing the price of Apple stock down from $499.23 at the close of Aug. 28, 2020, to $127.58 at the opening on Aug. 31.
The split makes it less expensive for investors to buy Apple stock. (If you’re already an Apple shareholder, don’t worry — stock splits don’t affect the value of your holdings.) But whether Apple or any other stock deserves space in your portfolio will depend on your financial situation, current holdings and investment goals.
Here are three things to consider before buying Apple stock:
1. The fundamentals of Apple stock
You may have already made it past what can be an overwhelming part of investing — identifying the stock you want to buy — but you’re not off the hook for another important step: research.
Knowing a company as a customer doesn’t equal knowing it as an investor. Wise investors spend time doing both quantitative research (looking at things like revenue, net income and earnings) and qualitative research (evaluating the competition, management and how the company makes money, for example). If you are new to such analysis, see our guide on how to research stocks.
As part of your research, you can review Apple's annual and quarterly reports, which will outline key information regarding the company's operations, financial results, sources of income and expenses. You can also look at factors like Apple's price-to-earnings ratio (called a PE ratio) and its dividend yield and growth rate, especially if Apple's dividend is part of why the stock appeals to you.
Annual and quarterly reports are available through Apple's investor relations website, and key information and stock research is also available through online brokers or independent analysis sites like Morningstar. (Read our review of Morningstar's stock research offerings.)
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2. How Apple stock fits into your portfolio
If you like what your research uncovers, you'll want to consider how Apple stock fits into the rest of your investment portfolio. Investing is all about diversification and asset allocation, two terms that involve spreading your money across various investments to align how much risk you're taking with your personal risk tolerance. Investing your entire portfolio in any single stock is considered risky; one run of bad luck for that company and your whole investment is at risk. Diversifying your investments across many companies, industries and geographical locations can help reduce that risk.
So before you buy Apple stock, consider what other investments you own and how Apple slides into that mix. Does buying Apple shift your portfolio too far toward technology? Too far into stocks in general? (Many rules of thumb suggest a portfolio should contain both stocks and safer investments, like bonds.) Or does it balance out the other investments you own?
Many investors buy Apple stock as part of an index fund, which is a collection of investments wrapped together. When you purchase an index fund, you're buying a group of investments designed to track a stock market index, like the S&P 500. Apple is included in the S&P 500 and is a large-cap stock — which refers to the company's size, or market capitalization — so it is frequently among the top holdings of S&P 500 index funds and large-cap index funds.
3. How much you can afford to invest
With research-backed reasons and portfolio analysis supporting your decision to buy Apple stock, it may be tempting to assume the amount you should buy is the amount you could buy.
Say you have $1,000 to invest. You can find out how many shares of Apple that would buy you by looking at real-time trading information, which is available on your online broker's website by searching for Apple’s trading ticker: AAPL.
But buying as much Apple as you can afford may not be the best decision, depending on your financial situation and what else currently is in your portfolio. Consider:
How the amount of your investment will affect the balance of your portfolio. Again, investors often try to build and keep a diverse range of investments — not too much in a single type of asset or company. A general rule is not to have more than 10% of your total portfolio in one stock.
Your short-term goals. While the stock market is considered a proven long-term investment, it is exactly that. There are other alternatives for short-term savings when your goal is to preserve your principal rather than growing it. You should also consider whether you have enough cash set aside for an emergency. Financial experts often suggest having enough to cover three to six months of living expenses.
Your future investment plan. Dollar-cost averaging, a strategy of making regular investments over time, helps ensure you don’t pour all your money into the market when prices are high. You can always make future investments into Apple or any other stock over time; there's no need to invest all of your available capital at once.
See our general guide on how to buy stocks for additional details on making stock purchases, including a full breakdown of various order types.
» Need a broker? View our list of the best brokers for stock trading
Disclosure: The author held no positions in the aforementioned securities at the original time of publication.