When looking at companies like Apple and Google, it’s tempting to decide to invest in the tech sector. Plus, there are a number of interesting other investments to make, from biotech stocks to information technology stocks.
But does it make sense for you? And what are the things you have to worry about when you decide to invest in the tech sector? There are plenty of value investing opportunities, but as with all investments, you also have to watch out for the pitfalls.
What’s Included in the Tech Sector?
As you might imagine, the tech sector is all about technology. Often, it’s broken down into smaller subsectors. (You can get ideas about different tech companies by using our stock app.)
Some of the types of companies you can find in the tech sector include:
When you think of microchips and processors, you’re thinking of semiconductors. This is an industry that is massive, and the reality is that semiconductors are everywhere.
Do you use a smartphone? Microchips have to be used for those. Semiconductors are in everything that uses a computer. What you think of computers — laptops, tablets, and desktops — are included, of course. But many cars use computers now, too. And smart appliances might have chips.
If you’re looking to invest in the tech sector, semiconductors are a good place to start.
Networking and Internet
Internet and networking are huge parts of our society. Connectivity is a big deal. You can invest in companies that provide these services to consumers (and likely you think of internet providers first thing), but it’s also possible to look to companies that provide business to business services.
Hardware encompasses all the actual devices that we use in technology. It includes the actual computers. It also includes communications equipment and networking equipment. You can also invest in companies that make consumer electronics to gain exposure to hardware. Phones, TVs, and other consumer items fall into this category.
Software applications are increasingly important to our society and in technology. Cloud computing and other innovations have given rise to different applications. You can look for companies that develop software applications and software infrastructure for ideas when you invest in the tech sector.
In a lot of ways, IT is sometimes seen as a subset of software. However, it is not any less important. Cybersecurity applications and other items that make up the backbone of our infrastructure are important parts of the tech sector, and companies that focus on performance and security can make great investments.
What to Watch Out for When You Invest in the Tech Sector
There are a lot of exciting opportunities in the tech sector. You have the chance to get in on growth and innovation. Plus, as our society becomes increasingly reliant on technology, this sector is poised to have staying power.
That doesn’t mean that everything you do in tech is a slam dunk, however.
Instead, you need to be on the lookout for companies that might not live up to their potential. Another issue with the tech sector is obsolescence. What seems cutting edge today might not be tomorrow. And the change can happen in the blink of an eye. Once MP3 players gained traction, CDs disappeared almost immediately. Smartphones replaced standalone consumer GPS devices before they really had a chance to take off.
Another consideration is profit and cash flow. The tech sector is rife with public companies that have yet to turn profits. Companies with high valuations may not even have positive cash flow. It’s an issue that you need to consider before you invest in the tech sector. You need to carefully vet your choices, and looks for stocks that are likely to provide you with long-term gains.
Consider Investing in Funds
Rather than trying to invest in the tech sector through individual stocks, it can make sense to invest in funds. Sector investing through funds can give you access to a wider swath of the market. This provides some protection against the problems of choosing the wrong tech sector stock.
You can make good money when you invest in the tech sector, and there is nothing wrong with trying something new. However, it’s vital that you take the time to understand the sector, and look for ways to reduce your risk so that you don’t wind up losing out because you bet on a losing stock.