Why should you invest in Technology?

The history of technology is the story of humankind. It covers the expanse of
humanity’s efforts to control its environment for its benefit by creating tools.
Tools/technology are things constructed to aid humans to solve problems and improve their lives.

One of the earliest applications of technology was the invention of the wheel. This basic, simple tool revolutionized the lives of humans, making it easier to go from one place to the other.

Fast forward to today and technology (which is simply applied science) of all sorts has infiltrated every aspect of our lives and is the major force for economic growth.

What Is the Technology Sector?

The technology (tech) sector includes companies involved with the research, development and distribution of technologically-based goods and services.  The technology industry today is incredibly broad, covering all sorts of scientific disciplines. 

The tech sector is categorized into three major industry groups:  software and services, technology hardware and equipment, and semiconductors and semiconductor equipment. These three industry groups are further divided into industries and sub-industries.

Another way investors categorize the tech sector is by determining who the intended user of the product or service being offered is: consumer or a business? Consumer goods could mean anything from mobile devices, wearable technology, household appliances and electronics. While businesses rely heavily on technology to create enterprise software, streamline their systems, host their databases, store their information, etc. Modern businesses could not exist without technology.

Why Invest in Technology?

The world has undergone a technology revolution every 40 to 60 years since the industrial revolution began in 1760, from steam power and railways, to steel and electricity to cars, roads and aviation.

Each of these technological advancements brought sweeping economic change. They spawned new business models and created waves of new entrepreneurs. They also displaced old industries, triggered speculative financial bubbles and sometimes even brought social and political upheaval.

Today, the impact of the information and communications technology revolution is arguably the greatest ever. That has led to one undeniable truth: technology bears a far greater influence on our daily lives and investment portfolios than it ever has.

It’s near impossible to design a well-balanced investment portfolio without including tech stocks, as it is by far the largest sector of the U.S. stock market.  But there is no reason to avoid it. There is no sector of the modern American economy that technology does not touch and that does not rely upon the tech sector to improve its quality, productivity, and profitability.

Many tech stocks have higher valuations than companies in other sectors. But for good reason. More than anything else, tech companies are associated with innovation and invention. Investors expect big money to be spent on research and development and they also expect to be rewarded by a steady stream of growth, fueled by a pipeline of innovative new products, services, and features.

Of course, there are risks. The tech sector is highly competitive, so any tech firm is at risk of having its product or service replaced by one from a competitor that is better.

However, tech stocks also promise significantly higher than average growth when compared to other equities. 

This has been the prevailing trend for decades now. Throughout much of this century’s historic bull market, tech stocks have been leading the way, with the biggest tech stocks outperforming the S&P 500 index over the past 10 years.

How to Participate in Tech Investing

First, invest in what you like. Technology is an intriguing topic to many people, which makes investing in tech stocks interesting. Successful investing involves detailed research. When you enjoy the topic of your research, you’re more likely to do the legwork required to make educated investing decisions.

Second, keep in mind that the tech sector is massive and broad. It covers a wide range of companies in different stages of development. So there is plenty of room for diversification within the tech sector (you can read our articles on AdTech, Biotech, Fintech, Nanotechnology, or Insurance Technology).

If you’re a novice investor or you simply don’t have the time to do the research it takes to pick stocks individually, you may want to look toward technology-focused index funds, exchange-traded funds (ETFs), and mutual funds.  A simple search on Magnifi indicates numerous ways for investors to access tech funds with low fees.

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The information and data are as of the October 13, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.