Tech stocks can make great investments, especially when you buy what you know and understand
Are you looking to invest in the Technology Sector but not sure where to start? Take a look as we explore what this exciting sector can bring to an investor and how to look at investing in one of the most forward-thinking rapid sectors in the world.
When it comes to the tech sector surely we can all agree that the room for growth is undeniable. As technology moves forward into our adapting world it leads the way as being one of the most exciting, rewarding yet growing sectors across the globe, setting the way for other sectors to continue to evolve.
Throughout the challenging year of 2020, it has caused technology to be adapted extremely quickly into new and existing avenues. Virtual working conditions have become the new norm and arguably are going to stay for many individuals post Covid-19. Whilst technology has also supported and has been a saving grace for business owners across the globe to be able to operate smoothly through working remotely and much more.
Due to the speed in which this forward-thinking sector has grown throughout the years to recent being thrust into having to reach new levels of efficiency, the buzz that surrounds this sector has both beginner and experienced investors wanting to be involved or further involved within such an industry.
Some of the biggest names in the world today such as Amazon (AMZN), Alphabet Inc (GOOG) and Apple Inc (AAPL) are not only some of the biggest tech companies in the world, but have grown at such a speed and yet still have much more growth scope ahead.
Likewise, tech stocks that are becoming more visible onto the radar such as Energous Corporation (WATT) that is a strong contributor within wireless charging, is a smaller tech stock to keep an eye on as it is potentially looking to partner up with APPL in giving consumers more efficient charging options.
A tech stock like this one is not only an extremely affordable option in comparison to the bigger players, but this stock is a great opportunity to be a part of as it has great room for growth as it expands its client database creating a bright portfolio that overall could lead to great financial returns.
Experts have confirmed that 2021 is the year for smart investors to be in the tech sector, leading us to look into how and what to look for within this attractive sector before jumping in to invest:
- Identifying and choosing the best tech stocks in 2021
- The pros and cons of investing in private companies
- Risks in investing in tech stocks
- Should you invest in tech stocks?
Identifying and Choosing The Best Tech Stocks in 2021
As stated above, the Covid-19 pandemic has brought many to extremes in some shape or form, and the technology industry was a leading sector that sky-rocketed throughout the year to new highs across the globe. The performing tech companies both great and small who offer fantastic products from Adobe Inc’s (ADBE) creative hub to Inphi Corp (IPHI) data technology, these stocks will look to continue to establish with the demand that is apparent as the world innovates and adapts to new demands and changes.
Take another example, two tech giants on the market today Amazon (AMZN) and Apple Inc (AAPL) with AMZN holding a share price today of a whopping $3194.50. This shows just how in demand and how well this stock has performed pushed on even further through the challenging year of 2020. Amazon carries on going from strength to strength and the reason for this is simple for the mega-brand as stated by Jeff Bezos, Amazon founder and Ceo, in the company's recent Q3 results.
“Amazon is what it is because of invention. We do crazy things together and make them normal. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.”
Amazon Inc has its hands in many avenues which of course adds to the company's overall performance results. Likewise Apple Inc, a tech company that has achieved fantastic results, still has huge room for growth set ahead and it sits at a more affordable price in comparison to AMZN stock.
The multinational tech company Apple Inc is a perfect example of a stock that has a great proven track record when it comes to its consistent revenue and its initiative to hit new levels of success. Along with the iconic iPhones, Ipads and more, APPL is now looking to enter a new sector within the business set in leading industry, the automotive industry in producing electric vehicles.
Yes, you have heard it right, Apple Inc was reported to be aiming to start production within 2020 for the company's latest invention as they work with some of the top leading companies within the field including Tesla Motors. This is an exceptional addition for this well-established company who are combining technology with key innovation and knowledge within an exploding avenue.
Then you have smaller tech companies such as Energous Corporation (WATT) who are collaborating with leading stocks like APPL. This is another solid positive if you are looking to invest in Apple stock and additionally if you are looking to add diversity to your portfolio. Adding a smaller tech stock with great prospects could be very beneficial as the stock develops giving you greater returns than some of the bigger stocks on the market today.
The key to establishing who are the best tech stocks on the market is to dig deeper into studying a stock's evidenced financial results. Looking into what sets these companies apart from their competitors along with identifying a company’s underlying revenue, whilst taking into consideration what this stock is aiming to look for as they look to the future. All these factors will not only help you look to seek out the best tech stocks on the market today but stocks that you can hold for the long-haul as they seek new avenues of adventure to achieve success, leaving investors to benefit hugely in the long-term image.
Investing in Private Companies
Investing in private companies is a key point to mention within how to pick the best tech stocks to invest in. As many beginner traders will more than likely stick to the public market for many reasons, the obvious being that these companies are more well known along with these stocks being easier to invest in than private firms.
Although it's wise to stick towards what you know and have a safety net when beginning your journey, it is also wise to know that there are private companies that also offer great positives with high profits to be made over the long-term outlook.
Looking at the number of companies traded on the London Stock Exchange, as of January 2021 stands at 1,981 which is showing a decline from the previous year of 2,024 company’s trading on the LSE market. In comparison to this, there were 426 private companies and 276 of which are tech start-up companies within the UK that as of 2020 have announced that they now have raised equity.
The stigma behind why private companies remain private and are not marketed as public companies could be for numerous reasons. However, one notable reason could be that a private firm may wish to mature and establish itself to its full potential before it looks to have additional eyes placed heavily on a company. So in effect, it could be setting itself up nicely for a budding future ahead which has been evidenced as many private investment companies do not look to becoming public as there is already great capital available within the private market, they have no solid reason to change over.
Investing in private tech companies can offer many advantages and one of the main factors being greater growth potential. If a company is a start-up company, it is clearly obvious that there is going to be more room for growth than in comparison to some well-established stocks on the market already, so the return on investment can be greater than what you are gaining from a publicly-traded company.
Disadvantages Of Investing in A Private Company
Having mentioned the positives, naturally, a private firm does pose more risk factors than in comparison to a public trading firm.
To start these companies are on a smaller scale than that of a public trading firm it poses more risk elements in terms of financial risk. Especially if they are a start-up firm and are just finding their feet, this is deemed to be very risky in investment terms.
Secondly, an investor will more than likely have to do additional homework on such stocks due to having more risk elements that are involved. Leaving investors to work harder at determining if a stock is worth investing in or not. This is down to a lack of open information on these private tech companies in comparison to public traded companies.
Then it comes down to finding private tech firms to invest in. This all depends of course where you are located within the world as to where to seek to find these hidden gems. Within the UK there are many ways in which you can seek to invest or learn additional information on the best private tech companies including using syndicate room and Beauhurst. These are both platforms where you will have the ability to be able to explore private firms with Beahurst having over 30,000 private companies including the top private tech companies available to invest in today.
Risks in Investing in Tech Stocks
Like with all investments there is always that risk element that you have to address or be aware of before you look to invest in anything. Keeping your eyes open and knowledge strong is key as being blindfolded when looking to invest could end up being extremely costly.
Although tech stocks offer huge positive prospects, more so now than ever before as the world relies even heavier on technology, these stocks can also be highly volatile depending on what level stock is at. For example, a small-cap tech stock will be more volatile than in comparison to a mid-cap or a large-cap tech stock, although they do hold their risk elements. This is not to mention that the industry can be complex especially as many tech companies are driving their focus in various avenues which can be challenging for investors to keep a hold of.
On the back of this, the bigger a stock is such as the stock mentioned above like Amazon (AMZN), it is priced at such a high cost per share, realistically for your average investor, this stock may not be achievable at an early stage but naturally is a safer bet in terms of volatility in comparison to smaller tech stocks.
There is no guarantee with any investment that gets placed that it will fare well but an increasingly popular way which has become many investors' go-to is having their ownership in tech stocks through Exchange-traded funds (EFTs).
EFTs are deemed to be safer than individual stocks as they offer less volatility across your portfolio, as well as being perfect if you're an investor who is not able to get the full knowledge of a company or if a stock seems too far out of reach in terms of its price. Along with other benefits which include simplified investing, offer a balanced investment and are great long-term investments.
EFTs are often regarded to be similar to mutual funds, however, EFTs can be bought and sold throughout the day whereas mutual funds are bought and sold at the price in which they close at the end of the day.
With EFTs you can invest in some of the best performing emerging tech stocks on the market, that are of course outside of the FAANG stocks which holds the five of most popular and best performing U.S tech stocks which include Netflix, Facebook, Amazon, Apple and Google (Alphabet). But you can look to be involved indirectly with these stocks through EFTs through various other companies who collaborate with these big players, so your chances of owning some of these stocks are achievable.
If international stocks are what takes your interest you can look to expand your collection within having international presence. Emerging Markets Internet & Ecommerce ETF (EMQQ) is a great addition as it tracks the private market and targets Internet & Ecommerce companies pulling in the most revenue. Additionally, there are many ETFs available throughout various platforms set across the UK and internationally that you can seek to invest in.
Are Tech Stocks For you to Invest in?
The tech industry has been a dominating and exciting industry for many years as the world relies strongly on technology for many solutions, notably it surrounds us everywhere in some shape or form. This is not going to change anytime in the near future, if anything the tech world is going to evolve beyond expectations as the industry evolves and solid consumer demand becomes stronger.
As the tech sector sits within the U.S as the largest tech market in the world holding a reported $1.6 trillion in 2021 equalling to 33% of the market, the tech sector also dominates in markets across the globe including India who are reporting an approximate rise in tech revenue to $194 billion for the year 2020.
In addition, tech stocks may come at a more hefty cost in comparison to other stocks in various sectors, but if it is financially plausible to do so investors will mostly only benefit by having such stocks within their portfolio. Alternatively having EFTs that have exposure within the tech sector but yet in a non-direct way is a safer yet rewarding way of investing and to be a part of such a fast, dynamic, forward-thinking industry.
The tech sector is arguably one of the best sectors that will offer you a mix of it all. Its fast-developing creations to its in-demand products from all across the globe, this sector is an industry definitely worth investing in within 2021 and to hold for many years ahead.
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Key Takeaways:
- The tech industry makes up 33% of the U.S market at $1.6 trillion to date.
- Tech stocks have dominated within the markets throughout 2020, mainly brought on quicker than expected due to the Covid-19 pandemic, yet this sector is still set to continue its rise.
- Tech stocks are renowned for being highly priced than other stocks on the market.
- You can invest in both Private and Public tech companies, both can offer great capital in the long-term outlook.
- Identifying the best tech stocks for 2021 is by looking into stocks records over the years, along with looking at where the stock is looking to head as the years move forward.
- EFTs are deemed to be safer than investing in individual stocks as they give you exposure to the tech industry without being in the direct firing line. Whilst additional stocks make up the fund and also act as a safety net.
- All investing comes with no guarantees and holds many risk elements. It is wise to conduct as much research as possible into your chosen tech stocks.
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