In recent years, tech stocks have been some of the most lucrative. As the name suggests, technology is one of the most rapidly-evolving sectors of the economy. There are plenty of key drivers in tech right now. Innovative technologies like artificial intelligence, blockchain, autonomous vehicles, and device companies are changing the way people live. It’s easy to see why these kinds of businesses are attracting so much investment.
The health of technology stocks has been something of an indicator of the larger economy in the past few years. Behemoths like Alphabet, Apple, and now Tesla have come to dominate the financial news often. Investors in these companies have seen stellar returns. Some smaller companies have proven to be very lucrative, too. For example, until the tail end of 2019, Zoom was a little-known tool. At the end of 2020, it’s a booming business. Now, Zoom is used by everyone, from school systems and churches to enterprise sized companies.
Of course, that’s not to say that the technology industry will always be in a boom phase. Who can forget the way the first dotcom boom ended? From 1995 to 2001, some stock prices for internet-related companies went up by as much as 400%. But by the end of the boom, even companies like Cisco and Amazon.com were hurting. Some organizations like Pets.com, Worldcom, and Boo.com didn’t make it through the downturn.
There’s a risk inherent in any stock market investment. People always face the chance of losing their principal as well as any gains. But technology is much more embedded in Americans’ lives today than it was in the 90s and early aughts. For example, everyone has a smartphone. The COVID-19 epidemic has made everyone more reliant on communications tech than ever before. This sector is not going away, even if there is another downturn.
A great way for investors to diversify their technology holdings and spread risk around is to invest in an exchange-traded fund or ETF. These funds tend to provide a much more consistent return than individual stock picking will. As with mutual funds, there are management fees associated with ETFs. These fees can range from low to high. Investors should research these fees before buying shares of a fund.