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An Introduction in Investing in Tech Stocks
Published 22nd June 2023

By Michael Dubois, Head of Corporate at VG Global Holdings 

The tech stock industry is ever-growing and has proved to be one of the most profitable investment sectors over the last ten years, and I think this is a trend which is likely to continue. While this area is  a complex and multi-layered one, it can  be simplified and broken down to its basics in order to make it simpler for investors to understand.

First off, it is important to understand that the sector can be broken down into two sub-divisions, each one with a multitude of different companies that fall under its umbrella.

One half of the industry is companies which make up the Hardware section, companies which manufacture physical products purchased by other manufacturers or consumers, and these can range from the microchips used in mobile devices to computing products bought by consumers. The other half of the sector is Software, which is made up of companies who produce software, developing and selling intangible computer programs or digital services – these pieces of software range widely, from social media, messaging or networking websites, to software-as-a-service (SaaS) and cloud computing.

However, there are many companies which are active in both divisions, like Alphabet, for example, which manufactures devices like phone and home assistants, while also offering its Google search engine and a full suite of online productivity tools.

The advantages of investing in tech stocks are that these companies are generally growth companies which can boost returns, although an investor will have to increase the risk in their portfolios to increase their returns. Risk can certainly cut both ways, but buying fast-growing tech names is a very effective way of boosting returns in a low interest rate environment.

The biggest factor to consider is the fact that tech companies live on the cutting edge of innovation, and are in the business of pushing the boundaries and finding new ways to solve problems and make life easier for companies and individuals in their work and leisure time – therefore, owning shares in tech companies lets investors participate in gains from breakthroughs that shape the computing and internet products consumers use everyday.

Also, tech companies now compose over 20% of the S&P 500 stock market index, and, with hundreds of billions of dollars pouring into index funds each year, it helps sustain growth for shares of the largest tech companies.

However, there are obviously some risks involved in investing in tech stock, such as the fact that they generally pay out very low dividends, since many of these companies forego dividends to reinvest in their future growth – as a consequence, tech companies in the S&P 500 average a dividend yield of under 2%.

Also, some analysts believe that the biggest gains may be over, with the main players in the industry having already experienced explosive growth, and that the best time to invest in tech stocks may have passed by – however, investors are still able to achieve high returns by investing in smaller firms, though that introduces the risk of determining how to pick the biggest winners.

Finally, there is the possibility of disruption, with many of the innovative bigger companies facing disruption of their business by new players with a stronger game, as well as the fact that there is always the shifting regulatory environment, whereby regulators can change the landscape for emerging technologies rapidly when things go wrong, due to data breaches, revelations about data collection and other factors, which can spur regulators to pass new laws and regulations that can impede future tech sector growth.

Investors who want to buy tech stocks can do so through a brokerage account with companies like VG Global Holdings, or through an individual retirement account (IRA), and if you are just beginning your investing journey or looking for a new way to trade, it is advisable to contact a wealth management company in order to get advice and assistance.

It is important to remember that when investing in individual stocks, it is critical that investors conduct their own research into companies that they are interested in, and assess for themselves the financial circumstances of each company before investing – investors must be aware of the risks before they buy.

This author does not hold any shares in any companies which are mentioned in this article.