Investing in Technology: How to Invest in Tech Companies https://investorjunkie.

com/investing/how-to-invest-in-tech-companies/

How to Invest in Tech

Companies
Want to invest in the last technology companies? Read on to
find out how.

Roger Wohlner  Last Updated: February 11, 2021  0  2 minute read

Advertising Disclosure This article/post contains references to products or

services from one or more of our advertisers or partners. We may receive
compensation when you click on links to those products or services

Technology influences everything we do today. From our

smartphones and computers to advances in medical
devices to satellites and cars, technology is everywhere. It's
part of nearly every sector. So it's only natural for investors
to think about investing in technology.

Let's dig deeper into how to invest in tech companies.

1 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

Investing in Technology 101:

What Is the Technology Industry?

Areas for Investment

Technology ETFs

What Metrics Matter the Most?

What Are the Risks Involved With Tech Stocks?

Who Should Invest in Tech Stocks?

Some Tech Stocks to Consider

Technology Stocks Are Just One of Many

Investing Options

What Is the Technology

Industry?
Companies in the tech industry can be engaged in a variety
of aspects of technology. When we think of tech companies,
we generally think of hardware like computers, tablets, and
smartphones. But tech companies can also be engaged in
artificial intelligence or research related to software.
Technology has become integrated into just about every
industry segment today.

Areas for Investment

Investors looking to invest in technology, look at companies
engaged in one or more aspects of technology. Some tech
examples include:

2 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

 Software companies provide the programs and code

that power software and devices. Microsoft is
considered one of the largest software providers. But
this industry segment also includes companies like
Oracle and IBM.
 Hardware companies manufacture or sell computers,
laptops, modems, routers, and other products for
individuals and businesses. This segment includes
companies like Apple, Cisco, and Samsung.
 Semiconductor companies make the chips that run
computers and other devices. Some of the top players
in this space include Intel, Micron, and Broadcom.
 Internet companies include those in media and
content production, cloud computing, and the ever-
growing e-commerce segment, including Amazon. But
social networking sites like Facebook and Twitter and
shared economy businesses like Uber and Lyft are
also tech companies.
 Telecommunications companies are those that
enable us to communicate with each other and
include Verizon and AT&T.

[/tie_listThe definition of a tech company or how to invest in

companies in the technology sector is constantly evolving.
And investors interested in this segment of the stock market
need to keep up with these continual changes.

Technology ETFs
One way to invest in the technology sector is via
technology-based exchange-traded funds (ETFs).
According to the Morningstar database, there are 75 ETFs
in the technology category.

3 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

 The Vanguard Information Technology ETF (ticker

VGT) is the largest ETF in this category. According to
Vanguard, this ETF “includes stocks of companies
that serve the electronics and computer industries or
that manufacture product based on the latest applied
science.” And the top two holdings are Apple and
Microsoft.
 The next largest ETF in this category is the
Technology Select Sector SPDR Fund (ticker
XLK). The fund includes internet companies, IT
services, semiconductor companies, and computers.
It invests in Apple, Microsoft, Visa, Intel, and Cisco,
with Apple and Microsoft, comprising nearly half of the
portfolio's funds.
 Another ETF worth mentioning is the Invesco QQQ
Trust (ticker QQQ). This is not a tech ETF per se, but
rather, an index that tracks 100 stocks listed on the
Nasdaq, which tends to be a tech-heavy index. The
top holdings in the fund are Apple, Amazon, Microsoft,
and Facebook.

Both VGT and XLK track technology sector indexes that

have rules for the inclusion of stocks, as well as when the
index is rebalanced and reconstituted. VGT and XLK are
the two largest technology ETFs by far, with $41.3 billion
and $35.6 billion in assets, respectively. The next largest
fund in the Morningstar database (First Trust Dow Jones
Internet ETF, symbol FDN) has $10.6 billion in assets and is
the only other ETF with over $10 billion as of this writing.

ETFs can be purchased through most brokers, including

Ally Invest, Public.com, and TD Ameritrade. Here's a quick
comparison between the three:

4 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

Highlights

Rating 9.5/10 9.5/10 9/10

Min. $0 $0 $0
Investment

Stock $0/trade $0/trade $0/trade

Trades

Options $0/trade + $0.50/contract $0.65/contract

Trades $0.65/contract
($0.50/contract for
30+
trades/quarter)

Mutual ✓ ✓ ✓
Funds

Virtual ✓ ☓ ✓
Trading

E*TRADE Review Ally Invest Review TD Ameritrade Review

What Metrics Matter the Most?

When it comes to investing in stocks, there are certain
metrics to keep in mind. (“Metrics” refers to measurements
for assessing and comparing companies.) As with any
industry or market sector, technology has its own set of
business metrics, including:

5 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

 Switching costs. Is it easy and cheap for users to

switch from the company's services, or is this a
difficult and restrictive process? The latter is, of
course, better for the company.
 Network effects. This refers to the value of adding
more users to the service or application. This applies
especially to social media companies like Facebook
and Twitter.
 Costs. As with many industries, a company that can
produce its product or delivers its service at a low cost
has a potential competitive advantage. Keeping costs
low allows such companies to offer customers lower-
priced products or services while still making a nice
profit.
 Copyrights, patents, etc. These intangible assets
can be a key differentiator for the company and add
value to the stock if used correctly.

What Are the Risks Involved

With Tech Stocks?
As with any stock, there are always market and economic
risks associated with investing in the stock market. Beyond
this, some of the risks with tech stocks include:

6 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

 Product or service obsolescence. Tech, by its

nature, is a fast-moving and ever-changing business.
Consumers and businesses want the latest and best
products. If a tech company's technology isn't cutting
edge, then the business may suffer.
 Economic factors. These can impact spending on
technology by both businesses and individuals. An
economic slowdown can impact even high-flying tech
stocks.
 The company's financial strength. Like any stock,
the underlying financials of tech companies are
crucial. Is the company profitable? How is their
balance sheet? Do they have sufficient cash flow?

Who Should Invest in Tech

Stocks?
Whether tech stocks are (or are not) right for you as an
investor is, of course, something we can't say. This is a
decision that each investor must make on their own or in
consultation with their financial advisor, based on their
unique individual situation. That said, some might want to
think about adding tech stocks to their portfolio.

 For example, growth investors might want to

consider tech stocks as well as ETFs and
mutual funds that focus on tech. Many of the
brightest growth names in the current stock
market are tech names such as Apple,
Microsoft, and Amazon.

However, just because a stock is a tech stock

7 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

does not mean that it will automatically deliver

growth and outsized returns. An investor in any
individual stock must do their homework and
research before investing. Zacks Trade offers
excellent free stock research tools for investors .

Income investors need to look at tech stocks they might be

considering on a stock-by-stock basis. Some tech stocks
pay dividends. For example, Apple's current dividend yield
is 0.68%. But this is low in large part due to the recent run-
up in the share price.

As an investor, you may already have a significant stake in

some of the larger technology stocks via investments in
index mutual funds and ETFs that invest in major indexes
such as the S&P 500 or in funds that track the total U.S.
stock market. These funds primarily track market-cap-
weighted indexes, and many large tech companies have
huge market caps in today's environment. For example, the
Vanguard Total Stock Market Index Fund ETF (ticker VTI)
current technology weighting is over 23% as of this writing.

Some Tech Stocks to Consider

Many technology stocks have performed well so far in 2020.
A few prominent names in this sector include:

8 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

Apple

Microsoft

Alphabet (Google's parent; note there are two share

classes)

NVIDIA

PayPal

Adobe

Intel

Cisco

Salesforce

These are just a few names investors might consider as

starters. This is not meant to be an endorsement of these
stocks in any way, shape, or form. Keep in mind that things
change. And these companies could easily go the way the
proverbial buggy whip manufacturers of the past. Investors
need to stay informed and constantly do their homework
when it comes to tech or any other sector.

Technology Stocks Are Just

One of Many Investing Options
Technology pervades all aspects of our lives and our
business activities. So it should be no surprise that
technology is a key segment in the investing world.
Investors might consider investing in technology directly or
via managed investments like ETFs and mutual funds. But
as with any type of investment, investors must understand
what they are investing in, including the risks and potential

9 de 10 3/05/2021 09:29
Investing in Technology: How to Invest in Tech Companies https://investorjunkie.com/investing/how-to-invest-in-tech-companies/

rewards.

10 de 10 3/05/2021 09:29