How to invest in tech stocks? Everything you need to know!
Do you want to invest in tech stocks? Read this comprehensive guide! I discuss the best ways to invest in tech stocks and I also discuss the pros and cons of this type of stock.
What are tech stocks?
Tech stocks are stocks in companies that are active in the technology industry. You can divide tech companies into:
- Software: companies that develop software for businesses & individuals (Microsoft, Adobe, and Salesforce)
- Tech hardware: companies that produce computers and other hardware (Apple, Dell, HP)
- Telecommunications: companies that set up and maintain telephone networks (Vodafone, Verizon, Deutsche Telekom)
- Semiconductors: companies that produce chips (ASML, Intel, Texas Instruments).
- Services: companies that offer technological services (Meta, Uber, Alphabet)
How to invest in tech stocks?
Option 1: Invest in tech stocks yourself
If you have enough knowledge about stocks, you can select and buy tech stocks yourself. It is advisable to diversify sufficiently. Do not invest all your money in one single stock.
You can invest in tech stocks with the following brokers:
| Brokers | Benefits | Register |
|---|---|---|
 | Buy tech stocks without commissions. Your capital is at risk. Other fees may apply. | |
 | Speculate with CFD's on increasing & decreasing prices of tech stocks! 82% of retail CFD accounts lose money. | |
 | Benefit from low fees, an innovative platform & high security! | |
 | Speculate on price increases and decreases of tech stocks with a free demo! |
Option 2: Invest in tech stocks with an ETF
If you don’t have a lot of time available, you can choose to invest in tech stocks with an ETF. An ETF is a fund that allows you to invest in a basket of stocks all at once.
There are ETFs that cover a wide range of tech stocks and ETFs that focus on a specific sector.
Why is investing in tech stocks attractive?
Did you know that the five largest companies in the S&P500 are all tech stocks:
- Apple
- Microsoft
- Amazon
- Tesla
- Alphabet
Moreover, over the past 10 years, these tech stocks have performed better on average than the S&P500 itself.
This is mainly because tech companies are forward-looking. These companies innovate and are looking for products that will perform well in the future. These companies strive to outperform the market, which makes them potentially interesting investments.
What are the risks of tech stocks?
- High risk: Tech stocks are very risky. Because high growth is expected, the price can drop significantly if this growth is not realized.
- Interest rate sensitivity: Tech stocks are very sensitive to rising interest rates. When interest rates rise, stocks values fall.
- Bubble: Not all tech stocks perform well. Sometimes tech stocks soar to unprecedented heights only to collapse completely.
Which tech stocks are the best to invest in?
In my opinion, tech stocks of large companies are the most appealing. These companies often show strong growth while maintaining a solid financial base.
Many investors try to find the next Apple or Amazon. If successful, they can achieve enormous returns, but the chance of failure is also high. How do you recognize a high-quality company among thousands of mediocre ones?
Tech stocks on NASDAQ
If you have decided to invest in tech stocks, you can do so on the NASDAQ. This is an American technology exchange, where we find a large part of the well-known tech stocks. These are mainly tech stocks of American companies, such as Alphabet, Meta, and Apple.
Not all tech stocks on NASDAQ perform equally well. Companies that end up on this prestigious exchange can also deliver poor performance. For example, in 2023, the price of Meta fell by more than 50%! That is why it is important to think carefully about which stock you ultimately want to invest in.
Why do tech companies perform poorly in a high-interest-rate environment?
Tech companies perform poorly in rising interest rate environments. In 2023, you saw many tech companies decline in value.
This is partly because tech companies require a lot of financing. For example, a company like Uber is not yet profitable and is entirely dependent on loans. When interest rates rise, the cost of these debts increases significantly, which puts further pressure on the company’s position.
In addition, there is a lot of growth priced into the stock. Tech companies often grow strongly, and the value of this growth decreases as interest rates rise. When you suddenly receive more interest on your savings account, investors demand a higher return to make an investment more attractive. If the company’s position does not improve, the stock becomes less attractive compared to other investment options.
Conclusion: Is investing in tech stocks interesting?
In the long term, investing in tech stocks is certainly appealing. Digitalization has only received an extra boost due to COVID-19, and in emerging economies, the demand for high-quality technology is increasing. However, investments in tech stocks are risky, and you can certainly lose a lot of money in the short term.
Therefore, it may be wise to invest with Dollar Cost Averaging (DCA): you then invest a fixed amount in tech stocks periodically. This allows you to reduce the volatility of your investments in this captivating sector.
