Why tech stocks are great investments both in the short and long term

Featured article by Greg Smith, Independent Technology Author

You can view and skew the numbers any way you like, but the bottom line remains – tech stocks are absolutely crucial to the strength of the key indices such as the Nasdaq and S&P 500.

Indeed, load up the top-performing firms in 2020 (ordered by % price change), and the stats speak for themselves:

Tesla (743%), Zoom (396%), Etsy (302%), DocuSign (200%), Nvidia (122%), PayPal (117%), AMD (100%) …. the list goes on.

In short, both current and next-generation tech firms are thriving, and that is no coincidence.

The truth is that we are currently living in the midst of a technological revolution. Soon, cash payments will be obsolete, job roles formerly held by humans will be taken over by robots and AI, and the need to live our lives in a healthier, more sustainable way – whether you are a global warming believer or not – has led to innovative firms like Tesla thriving beyond all comparison.

One of the great things about investing in tech stocks is that even relative minnows can swim amongst the sharks and deliver profit. Zoom’s annual revenue quadrupled in 2020 compared to the previous year, and while that success has been largely situational – the video platform was the go-to for many businesses and families at the start of the pandemic. That is confirmation that if you have an innovative tech product that there’s a captive audience for, you can do very well no matter what your company size.

Like all sectors, there are duff investments in technology that you should avoid, but the perk is that there are so many angles of attack – in the short term, many of the tech giants are smart stocks to invest in because they are more resistant to economic pressures, and thus their price tends to stabilize quite nicely.

And in the medium to long term, there are speculative plays available on emerging tech providers that very much fit the ‘buy low, sell high’ criteria.

So, what else do you need to know about investing in technology.

Top tips for investing in tech stocks

With tech stocks typically outperforming general market stocks for the past five years, it’s easy to see why so many investors are keen to open long positions on the leading brands.

But they don’t offer a guaranteed goldmine of profitability, and if you don’t follow some simple investment tips, then you could easily find yourself out of pocket.

1. Get the right broker

All of your interest in investing in tech stocks will be worth nothing if you aren’t signed up with the right broker.

You want access to the most innovative and fast-growing stocks in the tech sector, but you also want the chance to invest in brands that are yet to truly reach their full potential.

Other considerations – fees, security, licensing, customer support – also have to be factored into your decision, and so you should spend as much time researching your broker as you do the stocks themselves.

To help you get started, here’s a look at the True Potential advisor fees and other areas of importance.

2. Chase the trends, but be smart

If you can tap into an emerging market early enough, clearly your gains are going to be sizable when compared to those investors that are late to the party.

Some of the most exciting new tech developments in 2021 and beyond include AI (artificial intelligence), RPA (robotic process automation), IoT (internet of things), quantum computing and the blockchain, and all offer opportunities for savvy investors.

However, the advice – regardless of sector – remains the same. You should always commit yourself to hours of research, be it for a particular area of new tech or the companies that inhabit them, to ensure that your investments are based on sound principles and clear indicators for future success.

Investing blindly in emerging tech stocks – assuming that profit will automatically follow – is one of the worst decisions you will make.

3. Invest in leaders, not followers

One of the things about technology is that it can rarely be trademarked.

So, when an emergent tech is developed – let’s say AI – there isn’t just one single company that can utilize it …. anybody can have a go at becoming a prominent player in the field.

And so, a culture of leaders and followers is born. Ideally, you want to be investing in the leading firms – those whose market share is not eroded even with fierce competition in the game.

One very basic example would be Apple, whose proprietary tech is typically adored and very hard to replicate – even though the likes of Samsung are trying hard to do just that.