With Apple and Tesla's shares trading at lower prices after their stock splits on Monday, you might be thinking now is the time to invest in these companies.Â
After all, one share of Apple stock cost around $130 on Tuesday afternoon. Before its 4-for-1 stock split, it was trading at more than $500. Tesla stock, meanwhile, was down to around $480 a share from more than $2,000 before its 5-for-1 stock split.Â
However, investors should tread lightly, financial advisors say.
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These numbers don't mean the stocks are suddenly on sale or that you can now buy more of either company for less of your money, advisors say. Each stock is cheaper now because it buys you less of the company than it did before.Â
If you buy one share of Apple today for roughly $130, you're paying one-fourth the price of what Apple stock cost before its split because that one share is now worth one-fourth of what it used to be worth. A share of Tesla stock today is worth one-fifth what it used to be.Â
For any shares of Apple or Tesla you may have already owned, each one is now sliced into four or five, they explain.
"Shareholders simply own more shares that correspondingly have a lower value," said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management.Â
What's more, stock splits don't change the fact that most people are better off investing in simple index funds that contain hundreds or thousands of companies than trying to make a profit picking and choosing individual companies, experts say.Â
That's because the future is uncertain, and particularly these days. We don't know what life will look like on the other side of the coronavirus pandemic.Â
"The average investor can get hurt by trying to buy stocks in this environment — especially hot stocks that split, like Tesla and Apple," said Cathy Curtis, a CFP and founder and CEO of Curtis Financial Planning in Oakland.
And while Apple and Tesla are two of the most valuable and popular companies in the world today, reversals of fate are common on Wall Street.Â
"Not too long ago, GM and Eastman Kodak were two of the most valuable companies on the planet," said Allan Roth, CFP and founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado. "Both still exist but shareholders were wiped out."Â
Ted Jenkin, a CFP and founder and CEO of Atlanta-based financial advisory firm oXYGen Financial, agreed.
"Be careful about falling in love with one stock," Jenkin said. "Remember BlackBerry, Nokia and Blockbuster."
Even in the short term, it can be hard to predict how a company will perform after a split.Â
When Apple split in 2014, it spiked by nearly 40% for the year. After its split in 2000? It was down 60%.