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How to Invest in Tech Stocks and ETFs

Tech stocks are known for attracting investors of all stripes, from novices to the highly experienced.

The tech sector is enormous. When you talk about “tech stocks,” companies like Microsoft, Apple, and maybe even Netflix probably spring to mind. But the tech sector is much more than consumer goods. When you talk about tech, you’re broadly referring to an industry comprised of sectors like the following.

  • Telecommunications
  • Consumer and industrial electronics
  • Information technology (IT)
  • Semiconductors
  • Artificial Intelligence (AI)
  • Blockchain (such as Bitcoin)
  • Internet of Things (IoT)

In short, almost any business that engages in the research, manufacture, maintenance, repair, or distribution of physical electronics (hardware) or codes and platforms (software) may fall under the umbrella of “tech.” And this means that picky investors have a plethora of options from which to choose.

Why Invest in Tech

Tech stocks are known for attracting investors of all stripes, from novices to the highly experienced. The basic premise is simple. Tech companies offer newness, excitement, and innovation that other industries simply can’t match. And as they look to the future with new technologies and platforms, their stocks tend to charge upward in the market (at least for a time).

But it’s not just new inventions and big ideas that draw investors. Investing in tech also gives individuals a chance to invest in brands that play a major role in their lives. (Who among us doesn’t own a computer, smartphone, or at least a streaming media account?)

At the same time, tech stocks offer unique opportunities for growth, income, and value strategies. In the same share. For instance, investing in a mature tech company like Apple will not only generate dividends. It’ll also likely lead to both short- and long-term growth. And for those seeking greater bursts of short-term growth, there’s an ever-expanding field of younger, more exciting capital ventures (at higher risk).

Some investors also like to invest in technology because they’re not just investing in technology. Take Tesla, for instance. While Elon Musk’s brainchild is not categorized as tech, it relies on fast-paced innovation to differentiate its vehicles, batteries, and solar solutions. Or Netflix, the streaming media giant that has sprawled leisurely into the production space to feed content into its platform. And then, of course, you have Amazon. An enormous online retailer, forward-thinking technology engineer, and cloud hosting service in one.

Big Names in Tech

Some investors seeking their riches in tech focus on seeding capital investments to small, innovative startups. That startups looking to disrupt an enormous industry. But startups — though numerous — aren’t the only avenues to success.

For the average investor, gravitating toward high-growth powerhouses often makes more sense. As the 21st century’s bull market has raged on, tech stocks have led the forward charge with gusto. As a result, the largest tech investments have consistently outperformed the S&P 500 over the past decade — in fact, the top five members of the S&P are some of the most familiar names in tech:

  • Alphabet (Google)
  • Amazon
  • Apple
  • Facebook
  • Microsoft

And then, of course, you have other giants such as NVIDIA, AMD, Netflix, and PayPal — among dozens of others — that fall into the category of high-growth tech stocks, too. While these companies vary in product and industry, they share one thing in common: each hit respective all-time highs during 2020 due to the explosion of stay-at-home work (and play) around the globe.

But if you prefer to focus on consistent, long-term growth while minimizing the volatility that individual stocks bring, there are plenty of high-performing ETFs to select from, too, including:

  • The Vanguard Information Technology ETF (VGT) with $47 billion AUM and more than 425 securities.
  • The Technology Select Sector SPDR Fund (XLK) with $39.6 billion AUM and around 70 securities.
  • The iShares U.S. Technology ETF (IYW) with $7.1 billion AUM and more than 150 securities.

Each of these ETFs focuses broadly on the tech market, with most of their assets falling into the giant and large-cap range. Furthermore, they all boast consistent, long-term growth over the last decade. By investing the majority of their assets into mature companies and dabbling in smaller investments, the funds offer a small buffer against the volatility inherent in the tech market.

Where to Start Investing in Tech

When it comes to investing in tech, you can get started in a few ways. The most obvious is to buy individual shares via a broker or online investment platform, such as Robinhood, Fidelity Go, Acorns, or SoFi Invest, among others. Traditional stockbrokers also offer online platforms now, such as TD Ameritrade and Charles Schwab.

Investing in stock ETFs is another increasingly popular option, as it allows you to spread your risk and hold a few more securities in one go. Plus, you typically need less starting capital to invest — tech shares often price in triple and quadruple digits, whereas you can invest smaller dollar amounts into an ETF.

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Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC (“Quantalytics”). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC (“QAI”), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai’s investment advisory services.

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