Why Investors Should Consider Adding Tech Stocks to Their Portfolio
There’s always been much debate in the world of investment about whether or not to invest in tech stocks.
After all, there are some notable risks.
For one, tech stocks can be subject to high valuations. In many cases, this value is justified – and often even undersells the company’s worth and return potential. However, tech companies often have high-priced shares regardless of their future potential, making unprofitable investments.
What’s more, tech stocks can be volatile, as the nature of the tech world is cyclical – rising tech companies can easily displace the top player in a field within a relatively short time.
Then, these companies may – or may not – quickly retake their place in the following months, making it difficult to know when to enter or exit an investment.
Despite these concerns, investors forgoing tech stocks miss out on one of the most exciting and potentially rewarding sectors for investment.
With that in mind, here are six reasons you should consider tech stocks as an investor.
Global digital transformation.
There isn’t an aspect of life that tech doesn’t touch – and since we’re currently undergoing worldwide digital transformation, we can only expect its influence on our lives to increase and connect more parts of the world.
In part fuelled by the COVID-19 pandemic, the rate at which this digital transformation is being achieved has skyrocketed, with the majority of businesses and organisations utilising tech to take operations online or facilitate remote working with communications tools.
To summarise: tech is being adopted more and more – and for an increasing range of reasons – and this will only increase in the future, making it an investment sector with seemingly limitless growth potential.
Tech stocks are fun to research.
While this might seem trivial, the best investments are made when sufficient time is put into their research.
The great thing about tech stocks is that they’re fun to research – which makes sufficient research more likely to happen – since technological developments (and their implications for the world) are fascinating.
Naturally, investing in well-researched stocks increases the likelihood of your portfolio being successful – instead of being dragged down by uneducated stock investments that could’ve been avoided.
Potential for huge returns.
Tech comprises the five top-performing companies of the S&P 500, making them incredibly valuable. Additionally, compared to other popular investment sectors, tech outperforms the average market, generating higher than average returns and making it possible to be hugely rewarded by your tech investments.
Proven by the lucky early investors of tech companies such as Facebook and Google, investors who get in early with tech start-ups and fast-growing tech companies can end up reaping huge returns on their investments a few years later.
However, this requires diligent research and can backfire if investors buy stocks from the wrong tech companies.
Another way investors can hope to earn huge returns is by investing in the ‘big tech’ space.
FAANG companies – Facebook, Amazon, Apple, Netflix and Google – have reliably produced above-average returns compared to the rest of the stock market for years.
Though the shares’ high valuations deter many, these have proven to be worth their cost in terms of returns over the last decade – and are a great way to increase the overall returns of your investment portfolio.
Big tech stocks are generally reliable.
Following on, stocks from big techs, such as FAANG, are less risky investments than the higher risk, lesser-known tech companies within the sector.
As a result of their long-proven history of performance, continuous growth and sturdy fundamentals, if you invest in these companies, you’re almost guaranteed to earn worthwhile returns as the years go by.
Tech stocks can help to diversify your portfolio.
Though some investors avoid tech stocks, labelling them ‘high risk’, investing in the tech sector can help diversify your portfolio, mitigating risk overall.
The tech industry is subject to different market influences than many other investment sectors, helping to stabilise your portfolio when the market doesn’t favour your other investments.
What’s more: within the tech sector, there are multitudes of subcategories, such as software, hardware, semiconductors, communications, artificial intelligence, autonomous vehicles and many more.
This means you can even invest in multiple tech stocks and still achieve diversification benefits – even if your portfolio focuses on this sector.
ETFs/funds provide an easy way to benefit from tech stocks.
To successfully invest in individual tech stocks, you need to back up your investment decisions with a lot of research.
However, for those wanting to benefit from this lucrative sector who don’t have the time – or the inclination – to do sufficient research on each tech stock, you can explore a few other options.
Many ETFs and mutual funds are heavily – or exclusively – geared towards the tech sector, comprised of companies meticulously researched and assorted to increase the likelihood of outstanding returns for those who invest in the fund/ETF.
This makes it possible to conscientiously invest in the tech sector even if you don’t have the time to do the research necessary to profit from individual tech stocks.